Urban Co-operative Banks Sustain Positive Growth Momentum in FY25: RBI Report

Urban Co-operative Banks (UCBs) continued their multi-year recovery and posted steady, broad-based growth in FY25, supported by balance sheet expansion, the fastest credit growth in six years, improved asset quality and stronger capital buffers, according to the Reserve Bank of India’s latest Trend and Progress of Banking in India report.

The consolidated balance sheet of UCBs expanded by 4.4% in FY25, up from 4.0% in FY24, reflecting improving confidence and operational stability across the sector. Credit growth accelerated to 6.7%, the highest in six years, with both scheduled and non-scheduled UCBs reporting improved lending activity. Deposit growth also strengthened to 5.2%, compared with 4.1% in the previous year.

This momentum extended into the first half of FY26. By end-September 2025, deposits grew 6.8% year-on-year, while credit expanded 6.4%. The credit-deposit ratio rose to 63.3%, signalling improved intermediation efficiency and a more active role in local credit delivery.

Consolidation and Scale-Led Stability

The sector continues to consolidate under RBI’s four-tier regulatory framework. As of March 2025, 1,457 UCBs were operational, with Tier 1 banks accounting for 57.5% of institutions. In absolute terms, total deposits stood at ₹5.84 lakh crore, while advances reached ₹3.70 lakh crore.

Although Tier 3 and Tier 4 banks together accounted for less than 6% of UCBs by number, they dominated the sector in scale, accounting for more than half of total deposits, advances and assets—underscoring the role of size and capital strength in sectoral stability.

Tier-wise data highlights a clear scale gradient:

• 838 Tier 1 UCBs held deposits of ₹65,760 crore and advances of ₹43,991 crore
• 535 Tier 2 UCBs accounted for ₹1.78 lakh crore in deposits and ₹1.10 lakh crore in advances
• 78 Tier 3 UCBs reported ₹2.01 lakh crore in deposits and ₹1.23 lakh crore in advances
• 6 Tier 4 UCBs held ₹1.39 lakh crore in deposits and ₹93,542 crore in advances

Profitability and Asset Quality Improve

Profitability strengthened sharply during FY25. Net profits rose 14.2%, following a 52% surge in FY24, aided by reduced provisioning requirements and better asset quality. Returns on assets and equity improved, indicating a structural strengthening of financial performance.

Asset quality improved for the fourth consecutive year. The gross NPA ratio declined to 6.2% at end-March 2025, nearly half of the 12.1% peak recorded in March 2021. Net NPAs fell to 0.7%, while the provision coverage ratio rose to 90.1%, reflecting sustained balance sheet clean-up and harmonised provisioning norms. Although GNPAs edged up seasonally, they moderated to 7.6% by September 2025, down from 9.3% a year earlier.

Capital buffers remained robust, with over 92% of UCBs maintaining a CRAR above 12%. The sector-wide capital adequacy ratio improved to 18.0%, driven by stronger Tier 1 capital.

Focus on Priority Sector and MSMEs

UCBs met the 60% Priority Sector Lending (PSL) target in FY24, including sub-targets for micro enterprises and weaker sections. By March 2025, MSMEs accounted for the largest share of UCB advances, with credit to micro enterprises showing a notable increase, indicating improved access to finance for smaller borrowers.

Sector Poised for Sustainable Growth

Commenting on the findings, Prabhat Chaturvedi, CEO of the National Urban Cooperative Finance and Development Corporation Ltd (NUCFDC), the umbrella organisation for the UCB sector, said the data reflects consistent balance sheet improvement and a sustainable growth trajectory.

“The sector is navigating a sustainable growth path amid reforms and a renewed focus on governance and compliance. Many UCBs, some over a century old, remain a vital pillar of India’s financial inclusion architecture. Continued policy support will further strengthen the UCB ecosystem and deepen access to finance,” he said.

Overall, FY25 marks a decisive shift for Urban Co-operative Banks—from balance sheet repair to growth-led resilience—repositioning them as stable, community-focused intermediaries within India’s formal banking system.