The Reserve Bank of India has issued second amendment directions to its 2025 framework on Urban Co-operative Banks undertaking financial services, updating the rules for agency business and referral services. The changes review how Urban Co-operative Banks may distribute or refer third-party financial products, clarify that agency business must be undertaken without risk participation, and limit referral arrangements to cases where the bank only shares product information and does not handle ongoing customer interaction such as distribution, grievance redressal or post-sale service. Customer service and conduct requirements for these activities will be consolidated in the Reserve Bank of India Urban Co-operative Banks Responsible Business Conduct Directions, 2025. The revised framework also adds definitions for regulated financial products and services, third-party products and services, and third-party product and service providers. Across mutual fund distribution, insurance business as a corporate agent, online trading tie-ups and National Pension System point of presence services, UCBs must operate on a fee basis without risk participation, disclose that position upfront to customers, comply with the relevant sectoral rules of the Securities and Exchange Board of India, Insurance Regulatory and Development Authority of India or Pension Fund Regulatory and Development Authority, and ensure partner firms have robust grievance redressal arrangements. Insurance activity remains subject to a board resolution and prudential conditions including compliance with exposure norms, restrictions on lending to directors and related parties, and the minimum capital to risk-weighted assets ratio requirement. For online trading and certain other activities, eligibility is linked to the business authorization criteria in the Reserve Bank of India Urban Co-operative Banks Branch Authorisation Directions, 2025. The amendments take effect on January 1, 2027. UCBs seeking to provide online trading to demat account holders must apply through the PRAVAAH portal and submit a board resolution confirming they will not provide trading tips or recommendations or undertake portfolio management services.
Reserve Bank of India2026-06-15
Reserve Bank of India revises Urban Co-operative Bank rules for agency and referral business from January 2027
The Reserve Bank of India has revised the framework for Urban Co-operative Banks undertaking agency business and referral services, with effect from January 1, 2027. The changes require these activities to be fee-based and without risk participation, move conduct requirements into the Responsible Business Conduct Directions, and align mutual fund, insurance, online trading and pension distribution activity with the relevant sectoral regulator rules. Referral business is now limited to sharing product information without ongoing customer servicing.