Urban co-operative banks see their strongest credit growth in 6 years: RBI

Urban Co-operative Banks (UCBs) sustained their recovery momentum in FY25, shifting from balance sheet repair to steady growth, as credit expansion, profitability and capital strength improved across the sector, according to the Reserve Bank of India’s Trend and Progress of Banking in India report.

The consolidated balance sheet of UCBs grew 4.4% in FY25, faster than 4.0% in the previous year. Credit growth accelerated to 6.7%, the highest in six years, while deposit growth improved to 5.2%.

The momentum carried into the first half of FY26, with deposits rising 6.8% and advances 6.4% by end-September 2025. The credit-deposit ratio increased to 63.3%, indicating better intermediation efficiency.

The RBI data also highlighted the sector’s ongoing consolidation under the four-tier regulatory framework.

As of March 2025, 1,457 UCBs operated in India,

with Tier 1 banks forming the largest group by number. However, scale remained concentrated among larger entities. Tier 3 and Tier 4 banks, though fewer than 6% of UCBs, accounted for over half of total deposits, advances and assets.

In absolute terms, UCB deposits stood at ₹5.84 lakh crore and advances at ₹3.70 lakh crore. Profitability strengthened sharply, with net profits rising 14.2% in FY25 after a 52% jump in FY24, aided by lower provisioning and better asset quality. Returns on assets and equity improved, pointing to a more stable earnings profile.

Asset quality continued to improve for the fourth straight year. Gross NPAs declined to 6.2% at end-March 2025 from a peak of 12.1% in March 2021, while net NPAs fell to 0.7%. Provision coverage increased to 90.1%. Capital buffers also remained strong, with over 92% of UCBs maintaining a capital adequacy ratio above 12%.

UCBs met the 60% priority sector lending target, with MSMEs accounting for the largest share of advances, signalling improved credit access for smaller borrowers.

Commenting on the findings, Prabhat Chaturvedi, CEO of the National Urban Cooperative Finance and Development Corporation, said the data reflected consistent balance sheet improvement and a sustainable growth path supported by reforms, governance and compliance.