UPSC Prelims Practice Questions — RBI to resume licensing of urban cooperative banks

Q1. Consider the following statements regarding the sequence of regulatory milestones in the licensing of Urban Co-operative Banks (UCBs) in India: 1. The Reserve Bank stopped issuing fresh licences to UCBs in 2004. 2. The Reserve Bank's discussion paper on the licensing of UCBs was published on January 13, 2026, with stakeholder comments invited until February 13, 2026. 3. The Expert Committee on Urban Co-operative Banks presented its report in July 2021. 4. The four-tiered regulatory framework for UCBs was notified by the Reserve Bank in 2016, replacing the earlier two-tier categorisation. Which of the above is/are NOT correct?

  1. The Reserve Bank stopped issuing fresh licences to UCBs in 2004.
  2. The Reserve Bank's discussion paper on the licensing of UCBs was published on January 13, 2026, with stakeholder comments invited until February 13, 2026.
  3. The Expert Committee on Urban Co-operative Banks presented its report in July 2021.
  4. The four-tiered regulatory framework for UCBs was notified by the Reserve Bank in 2016, replacing the earlier two-tier categorisation.
  • A. 1 and 3
  • B. 2 only
  • C. 4 only
  • D. 2 and 4

Q2. The 2020 legislative amendment that is credited with strengthening the Reserve Bank of India's supervisory authority over co-operative banks since the 2004 licensing freeze amended which one of the following enactments?

  • A. The Multi-State Co-operative Societies Act, 2002, which governs societies operating across more than one State
  • B. The Banking Regulation Act, 1949, which governs the licensing and prudential supervision of banking companies
  • C. The Deposit Insurance and Credit Guarantee Corporation Act, 1961, which governs insurance of bank deposits
  • D. The Reserve Bank of India Act, 1934, which governs the constitution and functions of the central bank

Q3. Under the on-tap licensing framework proposed by the Reserve Bank in 2026, an applicant co-operative credit society seeking conversion into a bank is required to be registered under which one of the following?

  • A. The Societies Registration Act, 1860, which provides for registration of literary, scientific and charitable societies
  • B. The Companies Act, 2013, under its provisions relating to registration of producer companies
  • C. The Multi-State Co-operative Societies Act, 2002, which provides for societies with objects spanning more than one State
  • D. The Chit Funds Act, 1982, which provides for registration and regulation of chit business entities

Q4. Consider the following statements comparing the eligibility norms proposed for on-tap licensing of Urban Co-operative Banks in 2026 with existing benchmarks in the co-operative banking sector: 1. The minimum deposit base proposed for an applicant society is the same figure that marks the threshold of the topmost tier under the four-tiered regulatory framework for UCBs. 2. The minimum capital-to-risk-weighted-assets ratio proposed for applicants is higher than the lower end of the tier-wise range that the 2021 Expert Committee had suggested for existing UCBs. 3. The proposed ceiling on net non-performing assets applies only to uni-state co-operative credit societies, multi-state societies being exempt from it. Which of the statements given above is/are correct?

  1. The minimum deposit base proposed for an applicant society is the same figure that marks the threshold of the topmost tier under the four-tiered regulatory framework for UCBs.
  2. The minimum capital-to-risk-weighted-assets ratio proposed for applicants is higher than the lower end of the tier-wise range that the 2021 Expert Committee had suggested for existing UCBs.
  3. The proposed ceiling on net non-performing assets applies only to uni-state co-operative credit societies, multi-state societies being exempt from it.
  • A. 1 only
  • B. 1 and 2 only
  • C. 2 and 3 only
  • D. 1, 2 and 3

Q5. The Expert Committee on Urban Co-operative Banks constituted by the Reserve Bank of India in February 2021 was headed by whom?

  • A. R. Gandhi, a former Deputy Governor of the Reserve Bank of India
  • B. M. K. Jain, a former Deputy Governor of the Reserve Bank of India
  • C. Y. H. Malegam, a former member of the Central Board of the Reserve Bank of India
  • D. N. S. Vishwanathan, a former Deputy Governor of the Reserve Bank of India

Q6. The 2021 Expert Committee's recommendation for an umbrella body to provide cross-liquidity support, capital support and shared IT services to smaller banks in this sector has been operationalised through which one of the following entities?

  • A. The National Urban Co-operative Finance and Development Corporation, registered with the Reserve Bank as a non-banking financial company
  • B. The National Bank for Agriculture and Rural Development, functioning as the apex development financial institution for the rural sector
  • C. The National Cooperative Development Corporation, a statutory corporation functioning under the Ministry of Cooperation
  • D. The Deposit Insurance and Credit Guarantee Corporation, a wholly owned subsidiary of the Reserve Bank of India

Q7. Consider the following statements about the structure and regulation of the urban co-operative banking sector in India: 1. There were 1,457 Urban Co-operative Banks in the country as on March 31, 2025. 2. Under the four-tiered regulatory framework, Tier-4 comprises UCBs with deposits of more than ₹10,000 crore. 3. UCBs are registered under the co-operative societies laws of the States or of the Centre, while their banking functions are regulated by the Reserve Bank of India. 4. Among the four tiers, Tier-I accounted for the smallest number of UCBs as on March 2025. Which of the above is/are correctly identified?

  1. There were 1,457 Urban Co-operative Banks in the country as on March 31, 2025.
  2. Under the four-tiered regulatory framework, Tier-4 comprises UCBs with deposits of more than ₹10,000 crore.
  3. UCBs are registered under the co-operative societies laws of the States or of the Centre, while their banking functions are regulated by the Reserve Bank of India.
  4. Among the four tiers, Tier-I accounted for the smallest number of UCBs as on March 2025.
  • A. 1 and 4
  • B. 2 and 3 only
  • C. 1, 2 and 3
  • D. 1, 3 and 4

Q8. Consider the following statements about institutional and regulatory developments in India's co-operative banking sector: 1. The number of Urban Co-operative Banks declined from 2,104 in December 2003 to 1,457 by March 2025. 2. The four-tiered regulatory framework for UCBs was recommended by the Expert Committee and notified by the Reserve Bank in 2020. 3. The National Urban Co-operative Finance and Development Corporation was registered with the Reserve Bank as a non-banking financial company in February 2024. 4. Rural co-operative banks, unlike urban co-operative banks, remain outside the Reserve Bank's regulatory purview and are supervised solely by NABARD. Which of the above is/are NOT correct?

  1. The number of Urban Co-operative Banks declined from 2,104 in December 2003 to 1,457 by March 2025.
  2. The four-tiered regulatory framework for UCBs was recommended by the Expert Committee and notified by the Reserve Bank in 2020.
  3. The National Urban Co-operative Finance and Development Corporation was registered with the Reserve Bank as a non-banking financial company in February 2024.
  4. Rural co-operative banks, unlike urban co-operative banks, remain outside the Reserve Bank's regulatory purview and are supervised solely by NABARD.
  • A. 1 and 2
  • B. 3 only
  • C. 1 and 4
  • D. 2 and 4

Q9. Before the legislative change of 2020, the administrative and managerial affairs of an urban co-operative bank — including its registration and the supersession of its board — vested primarily with which one of the following?

  • A. The Urban Banks Department of the Reserve Bank of India, which handled supervision of this class of banks
  • B. The Registrar of Co-operative Societies of the State concerned, or the Central Registrar in the case of multi-state societies
  • C. The Department of Supervision of the National Bank for Agriculture and Rural Development, which inspects co-operative institutions
  • D. The Deposit Insurance and Credit Guarantee Corporation, which administers claims of depositors of failed banks

Q10. Consider the following as factors that led the Reserve Bank of India to stop issuing fresh licences to Urban Co-operative Banks in 2004: 1. Many UCBs licensed during the liberalised phase of the 1990s became financially unsound within a short period. 2. The failure of Madhavpura Mercantile Co-operative Bank exposed the vulnerabilities of the co-operative banking system. 3. The dual regulatory structure delayed corrective action and created gaps in supervision. 4. The collapse of Punjab and Maharashtra Co-operative Bank was among the failures that immediately preceded and precipitated the freeze. Which of the above is/are correctly identified?

  1. Many UCBs licensed during the liberalised phase of the 1990s became financially unsound within a short period.
  2. The failure of Madhavpura Mercantile Co-operative Bank exposed the vulnerabilities of the co-operative banking system.
  3. The dual regulatory structure delayed corrective action and created gaps in supervision.
  4. The collapse of Punjab and Maharashtra Co-operative Bank was among the failures that immediately preceded and precipitated the freeze.
  • A. 1, 2 and 3
  • B. 1 and 4 only
  • C. 2, 3 and 4
  • D. 1, 3 and 4

Q11. Consider the following statements about the decisions announced by the Reserve Bank of India along with its monetary policy review of August 2026: 1. The policy repo rate was reduced to 5.25 per cent and the stance was changed to accommodative. 2. Draft guidelines for the resumption of on-tap licensing of Urban Co-operative Banks would be issued for stakeholder consultation. 3. Draft directions would be issued following a comprehensive review of the credit monitoring framework applicable to rural co-operative banks. 4. The standing deposit facility rate was raised to 5.5 per cent while the marginal standing facility rate was left unchanged at 5 per cent. Which of the above is/are correctly identified?

  1. The policy repo rate was reduced to 5.25 per cent and the stance was changed to accommodative.
  2. Draft guidelines for the resumption of on-tap licensing of Urban Co-operative Banks would be issued for stakeholder consultation.
  3. Draft directions would be issued following a comprehensive review of the credit monitoring framework applicable to rural co-operative banks.
  4. The standing deposit facility rate was raised to 5.5 per cent while the marginal standing facility rate was left unchanged at 5 per cent.
  • A. 1 and 2 only
  • B. 2 and 3 only
  • C. 1, 3 and 4
  • D. 3 and 4 only

Q12. Consider the following statements about the regulatory measures announced by the Reserve Bank of India alongside its decision on Urban Co-operative Bank licensing: 1. The Reserve Bank proposed to review the norms governing management of concentration risk in rural co-operative banks. 2. The Credit Monitoring Arrangement instructions being reviewed for rural co-operative banks date from 2008. 3. The Reserve Bank set out an in-principle proposal to rationalise the interest rate regulatory framework across its regulated entities. 4. The proposed rationalisation of the interest rate regulatory framework is confined exclusively to urban co-operative banks and will not extend to any other class of regulated entity. Which of the above is/are NOT correct?

  1. The Reserve Bank proposed to review the norms governing management of concentration risk in rural co-operative banks.
  2. The Credit Monitoring Arrangement instructions being reviewed for rural co-operative banks date from 2008.
  3. The Reserve Bank set out an in-principle proposal to rationalise the interest rate regulatory framework across its regulated entities.
  4. The proposed rationalisation of the interest rate regulatory framework is confined exclusively to urban co-operative banks and will not extend to any other class of regulated entity.
  • A. 2 only
  • B. 1 and 4
  • C. 3 and 4
  • D. 4 only