Urban co-operative banks nearly double credit balances in 5 years, shows report

Urban co-operative banks (UCBs) in India are expanding their role in the credit ecosystem, with outstanding balances reaching ₹3.4 lakh crore as of September 2025, almost double their level five years ago, according to Sahakaar Trends, a joint report by the National Urban Co-operative Finance and Development Corporation (NUCFDC) and TransUnion CIBIL.

While UCBs still hold a modest 1.8% share of overall industry credit, the sector is growing rapidly, driven by increasing retail and small-business activity and improving asset-quality metrics.

“UCBs are extending formal credit beyond large urban centres to households and small businesses in semi-urban and emerging regions. Their proximity to local communities allows them to serve borrowers where local context and relationships matter, helping bring more of Bharat into the formal credit system,” said Bhavesh Jain, MD and CEO of TransUnion CIBIL.

Shri Prabhat Chaturvedi, CEO of NUCFDC, added that sustaining institutional capacity, operational efficiency, and governance frameworks will be crucial as these banks scale up.

Credit concentrated in eight core products

The UCB credit portfolio remains focused on eight key products, which together account for 83% of outstanding balances.

Commercial loans lead with a 30% share, followed by housing loans (14%), retail business loans (12%), and loans against property (10%). Other products include personal loans, gold loans, auto loans, and loans against bank deposits.

Average ticket sizes vary by product: commercial loans at ₹50 lakh, personal loans at ₹4.7 lakh, housing loans at ₹23 lakh, and gold loans at ₹1.3 lakh.

Gold loans, while smaller in overall share, have shown strong growth (49% CAGR over five years) and improving asset quality, reflecting opportunities in semi-urban and emerging markets.

Growth driven by retail and commercial lending

Commercial loans saw the largest growth, with enquiry-level demand rising sharply over the past five years. UCBs recorded higher conversion rates from enquiry to origination compared with PSU banks, though disbursement speeds remain slower—45% of loans are disbursed within 15 days, versus 61% for PSUs.

Housing loan demand has been strongest in metro and semi-urban regions, attracting younger, female, and new-to-credit borrowers. Delinquencies for housing loans have improved, with 90+ day past-due balances falling to 2.8% in September 2025 from 3.2% a year earlier.

Personal loans also recorded higher enquiry-to-disbursal conversion, though disbursement speed lags behind NBFCs. Delinquencies have steadily improved, dropping from 4.5% in 2020 to 2.1% in 2025.

Opportunities for deeper penetration

Despite growth, UCBs have scope to deepen credit reach. As of March 2025, only 6% of their 30 lakh retail borrowers also had a commercial credit footprint.

During April–September 2025, nearly 3,000 of these borrowers sourced new commercial loans from PSU banks, indicating untapped cross-selling potential.

“The sustained growth of UCBs reflects stronger balance sheets, disciplined credit expansion, and rising adoption of technology‑enabled processes. They are increasingly well positioned to serve urban and semi-urban borrowers efficiently while supporting inclusive economic growth,” said Jain.

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