**Executive Summary**
The Reserve Bank of India (RBI) has issued the Urban Co-operative Banks – Undertaking of Financial Services) Amendment Directions, 2026, amending the Master Direction issued in 2025. These amendments, effective April 1, 2026, cover regulations for agency business, referral services, and other financial activities undertaken by Urban Co-operative Banks (UCBs). Key changes include modifications related to agreements with mutual funds, insurance business, referral business with insurance companies, online trading facility, and Point of Presence (PoP) services for the National Pension System (NPS).
**Key Points / Main Content**
* **General Provisions**
* The amendment directions are effective from April 1, 2026.
* Extant regulations governing agency business and referral services have been reviewed.
* Regulatory instructions on customer service and conduct aspects are consolidated in the Reserve Bank of India (Urban Co-operative Banks - Responsible Business Conduct) Directions, 2025.
* **Agreements with Mutual Funds (Amendment to Paragraph 19)**
* UCBs are permitted to enter into agreements with Mutual Funds for marketing their units, subject to conditions.
* UCBs must comply with SEBI guidelines and the code of conduct for distribution of mutual fund products.
* UCBs must ensure compliance with the Reserve Bank of India (Urban Co-operative Banks - Responsible Business Conduct) Directions, 2025.
* The business shall be undertaken on a fee basis without any risk participation, with explicit disclosure to customers.
* Distribution of Mutual Fund units shall be restricted to branches of the UCB.
* Mutual Funds whose products are being sold must have robust customer grievance redressal arrangements.
* Only mutual fund products covered under the arrangement shall be listed on UCB websites or digital channels.
* **Insurance Business as Corporate Agent (Amendment to Paragraph 22)**
* UCBs are permitted to undertake insurance business as corporate agents subject to certain conditions.
* UCBs shall not have violated individual and group exposure norms prescribed by RBI.
* UCBs shall comply with RBI instructions on loans and advances to directors, relatives, and associated firms.
* UCBs must comply with minimum CRAR and the Insurance Regulatory and Development Authority of India (IRDAI) regulations for corporate agents.
* UCBs must ensure compliance with the Reserve Bank of India (Urban Co-operative Banks - Responsible Business Conduct) Directions, 2025.
* The business shall be undertaken on a fee basis without any risk participation, with explicit disclosure to customers.
* Insurance companies whose products are being sold must have robust customer grievance redressal arrangements.
* Only insurance products covered under the arrangement shall be listed on UCB websites or digital channels.
* **Other Amendments**
* Paragraphs 21, 23 and 27 of the Master Direction are deleted.
* Amendments to Paragraph 25, regarding referral business with insurance companies, specify compliance with the Reserve Bank of India (Urban Co-operative Banks - Responsible Business Conduct) Directions, 2025, and relevant IRDAI regulations.
* Sub-paras (2) and (6) of paragraph 25 of the Master Direction stand deleted.
* Amendments to Paragraphs 31, 32, 33 and 35 specify the requirements for business authorization, online trading facilities, eligibility criteria, Point of Presence (PoP) services for National Pension System (NPS).
* The UCB offering the online trading facility shall adhere to conditions
**Impact Analysis**
**Urban Co-operative Banks (UCBs)**
* **Impact**: UCBs must comply with the amended directions to continue offering agency business and referral services, marketing mutual fund units, undertaking insurance business, providing online trading facilities, and acting as Points of Presence (PoPs) for the National Pension System.
* **Action Required**: UCBs must review their existing agreements and processes to ensure compliance with the new directions, particularly regarding customer service, risk participation, disclosure requirements, and adherence to relevant regulations (SEBI, IRDAI, PFRDA). UCBs should review the Reserve Bank of India (Urban Co-operative Banks - Responsible Business Conduct) Directions, 2025.
Those UCBs desirous of providing online trading facilities to its demat account holders shall submit its application through PRAVAAH Portal with a copy of Board Resolution.
**Customers of UCBs**
* **Impact**: Customers will benefit from increased transparency and better grievance redressal mechanisms related to financial products and services offered by UCBs.
* **Action Required**: Customers should be aware of their rights and the redressal mechanisms available to them and understand the fee-based nature of the services.
**Reserve Bank of India (RBI)**
* **Impact**: The RBI will monitor the compliance of UCBs with these amended directions to ensure the stability and soundness of the cooperative banking sector.
* **Action Required**: The RBI will need to implement supervisory mechanisms to oversee compliance with the new guidelines.
**Insurance Regulatory and Development Authority of India (IRDAI) and Pension Fund Regulatory and Development Authority (PFRDA)**
* **Impact**: The IRDAI and PFRDA will continue to regulate specific aspects of business that fall under its jurisdiction.
* **Action Required**: The IRDAI and PFRDA will need to provide updated guidelines and work together with RBI to ensure a smooth integration of the new guidelines.
Key Entities Referenced
Reserve Bank of India (Urban Co-operative Banks – Undertaking of Financial Services) Directions, 2025: A set of guidelines issued by the Reserve Bank of India related to financial services provided by Urban Co-operative Banks, serving as the Master Direction amended by this document.
Section 35A of the Banking Regulation Act, 1949: Legal provision granting powers to the Reserve Bank of India referenced as the basis for these directions.
Reserve Bank of India (Urban Co-operative Banks - Responsible Business Conduct) Directions, 2025: Directions from the Reserve Bank of India that are frequently referenced within the amending document, concerning responsible business conduct for Urban Co-operative Banks.
Reserve Bank of India (Urban Co-operative Banks - Branch Authorisation) Directions, 2025: Directions from the Reserve Bank of India relating to branch authorisation that are frequently referenced within the amending document.
Urban Co-operative Banks (UCB): The entity to which the directions apply.
DOR.RAUG.AUT.REC.No. /24.01.041/2025-26 XX 2026
Draft Reserve Bank of India (Urban Co-operative Banks – Undertaking of
Financial Services) Amendment Directions, 2026
In exercise of the powers conferred by Section 35A read with Section 56 of the Banking
Regulation Act, 1949, the Reserve Bank being satisfied that it is necessary and
expedient in the public interest to do so, hereby, amends the directions issued vide
Reserve Bank of India (Urban Co-operative Banks – Undertaking of Financial
Services) Directions, 2025 (“the Master Direction”).
2. The extant regulations governing agency business and referral services have been
reviewed and, accordingly, the Master Direction has been amended and the revised
regulatory framework is provided below. Further, the regulatory instructions on
customer service and conduct aspects shall be consolidated in the Reserve Bank of
India (Urban Co-operative Banks - Responsible Business Conduct) Directions, 2025.
3. Short Title and Commencement
(1) These Directions shall be called the Reserve Bank of India (Urban Co-operative
Banks - Undertaking of Financial Services) Amendment Directions, 2026.
(2) These Directions shall come into effect on April 1, 2026.
4. These Amendment Directions shall modify the Reserve Bank of India (Urban Co-
operative Banks – Undertaking of Financial Services) Directions, 2025 as under:
(i) For paragraph 19 of the Master Direction, the following shall be substituted,
namely:-
“19. A UCB shall be permitted to enter into agreements with Mutual Funds for
marketing their units subject to the following terms and conditions:
(1) A UCB shall comply with the SEBI guidelines / regulations, including its code
of conduct, for distribution of mutual fund products.
(2) A UCB shall ensure that it is in full compliance with the instructions on
Reserve Bank of India (Urban Co-operative Banks - Responsible Business
Conduct) Directions, 2025.(3) The business shall be undertaken on fee basis without any risk participation.
This shall be explicitly disclosed upfront to the customers.
(4) The distribution of Mutual Fund units shall be restricted to branches of the
UCB.
(5) It shall be ensured that Mutual Funds whose products are being sold have
robust customer grievance redressal arrangements in place. The bank may
facilitate the redressal of grievances.
(6) Only such mutual fund products which are covered under the arrangement
shall be listed or displayed on websites or any other digital banking channels
offered by the UCBs.”
(ii) Paragraph 21 of the Master Direction stands deleted.
(iii) For paragraph 22 of the Master Direction, the following shall be substituted,
namely:-
“22. A UCB shall be permitted to undertake insurance business as corporate agent
with appropriate Board Resolution in this regard subject to the following conditions:
(1) A UCB shall not have violated individual and group exposure norms
prescribed by RBI.
(2) A UCB shall have complied with RBI instructions on loans and advances to
directors, their relatives, and associated firms.
(3) A UCB complies with the minimum CRAR regulatory requirement.
(4) A UCB should comply with the Insurance Regulatory and Development
Authority of India (IRDAI) regulations for corporate agents.
(5) A UCB shall ensure that it is in full compliance with the instructions on
Reserve Bank of India (Urban Co-operative Banks - Responsible Business
Conduct) Directions, 2025.
(6) The business shall be undertaken on fee basis without any risk participation.
This shall be explicitly disclosed upfront to the customers.
(7) It shall be ensured that insurance companies whose products are being sold
have robust customer grievance redressal arrangements in place. The bank
may facilitate the redressal of grievances.
2(8) Only such insurance products which are covered under the arrangement
shall be listed or displayed on websites or any other digital banking channels
offered by the UCBs.”
(iv) Paragraph 23 of the Master Direction stands deleted.
(v) In paragraph 25 of the Master Direction, the following shall be substituted under
sub-para (1), namely:-
“(1) A UCB shall comply with the instructions on Reserve Bank of India (Urban Co-
operative Banks - Responsible Business Conduct) Directions, 2025 and relevant
IRDAI regulations for undertaking referral business with insurance companies.”
(vi) Sub-paras (2) and (6) of paragraph 25 of the Master Direction stand deleted.
(vii) Paragraph 27 of the Master Direction stands deleted.
(viii) In paragraph 31 of the Master Direction, the following shall be substituted
under sub-para (2), namely:-
“(2) A UCB shall fulfil Eligibility Criteria for Business Authorization, as per criteria
prescribed in our Reserve Bank of India (Urban Co-operative Banks - Branch
Authorisation) Directions, 2025.”
(ix) For paragraph 32 of the Master Direction, the following shall be substituted,
namely:-
“32. A UCB fulfilling the criteria prescribed in paragraph 31 above and desirous of
providing online trading facility to its demat account holders shall submit its application
through PRAVAAH Portal (https://pravaah.rbi.org.in) to Department of Regulation, RBI
with a copy of Board Resolution to the effect that they shall not be offering tips /
recommendations to their customers for on-line trading and shall also not be
undertaking portfolio management services. Further, a UCB offering online trading
facility in tie-up with a broking entity shall adhere to the following conditions:
(1) A UCB shall ensure that it is in full compliance with the instructions on
Reserve Bank of India (Urban Co-operative Banks - Responsible Business
Conduct) Directions, 2025.
3(2) The business shall be undertaken on fee basis without any risk participation.
This shall be explicitly disclosed upfront to the customers.
(3) It shall be ensured that the broking companies whose products are being
sold have robust customer grievance redressal arrangements in place. The
bank may facilitate the redressal of grievances.”
(x) In paragraph 33 of the Master Direction, the following shall be substituted in the
introductory paragraph, namely:-
“33. A Scheduled UCB which fulfils Eligibility Criteria for Business Authorization in
terms of the criteria given in our Reserve Bank of India (Urban Co-operative Banks -
Branch Authorisation) Directions, 2025, shall be eligible to undertake the activity of
providing Point of Presence (PoP) Services for National Pension System (NPS)
regulated by Pension Fund Regulatory and Development Authority (PFRDA) subject
to the following conditions:”
(xi) For paragraph 35 of the Master Direction, the following shall be substituted,
namely:-
“35. A UCB acting as PoP shall ensure adherence to the following:
(1) A UCB conducting PoP services shall strictly adhere to the instructions on
Reserve Bank of India (Urban Co-operative Banks - Responsible Business
Conduct) Directions, 2025.
(2) The business shall be undertaken on fee basis without any risk participation.
This shall be explicitly disclosed upfront to the customers.
(3) It shall be ensured that the Pension Funds whose products are being sold have
robust customer grievance redressal arrangements in place. The bank may
facilitate the redressal of grievances.
(4) A UCB should comply with all the instructions issued by PFRDA from time to
time.”
(Manoranjan Padhy)
Chief General Manager
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