UCB Sector, Gear Up for a Digital Leap and Eye Inclusive Growth

MUMAI:
The National Urban Cooperative Finance and Development Corporation (NUCFDC) and TransUnion CIBIL jointly unveiled the first edition of the Sahakaar Trends report at the 2025 Credit Conference. According to the report, as of March 2025, portfolio balances for Urban Cooperative Banks (UCBs) stood at INR 2.9 lakh crore, recording a 6% YoY growth and 1.8x growth over the last 5 years (since March 2020). Key product segments saw double-digit growth in portfolio balances, driven by increased demand and wider market reach.

The report notes that the sector is poised for its next phase of growth through a tech-led resurgence, with headroom to advance digital transformation and modernize operations. A strategic focus on technology will unlock stronger growth and enhance competitiveness in a fast-changing financial landscape for UCBs.

The first edition of the Sahakaar Trends report offers a comprehensive view of UCB performance, benchmarking them against peer institutions and laying out data-driven recommendations to help them compete smarter, grow sustainably, and serve more effectively. The report underscores the growing relevance of India’s 1,472 UCBs as critical enablers of the country’s next phase of financial growth, particularly in expanding credit access across small towns and semi-urban India.

With the banking sector projected to grow at 11.5% annually through 2030, UCBs are seen as well-aligned with India’s inclusive development goals. Their deep roots in local economies, community connections, and grassroots presence make them uniquely placed to extend formal credit to India’s next billion borrowers. Serving close to 9 crore Indians, UCBs are not just financial institutions; they are local anchors of trust. As India eyes a $5 trillion economy, UCBs are positioned to rise responsibly and digitally, powering micro-entrepreneurs, self-employed youth, women-led SHGs, informal workers, and first-time homebuyers along the way.

Speaking about the report launch, Prabhat Chaturvedi, CEO, NUCFDC, said, “UCBs have long been pillars of trust and grassroots accessibility. Today, backed by data-driven insights, digital tools, and institutional support, they are poised to lead a new era of inclusive financial growth. Sahakaar Trends is not a report but a roadmap for how UCBs can evolve into agile, future-ready institutions that blend legacy strength with the promise of speed, scale, and digital sophistication.”

“The timing couldn’t be more fitting. The latest Financial Stability Report by the RBI highlights how UCBs are emerging stronger, with credit growth in primary UCBs accelerating to 7.4% year-on-year as of March 2025, with both Scheduled (SUCBs) and Non-Scheduled UCBs (NSUCBs) contributing to this momentum in lending activity. The sector’s capital position has also improved significantly, with the overall Capital to Risk-Weighted Assets Ratio (CRAR) rising to 18.0%. Asset quality has shown a positive shift, with gross NPAs declining to 6.1% and net NPA ratio falling to 0.6%. This data reaffirms our belief that the cooperative banking sector is entering a new chapter marked by resilience, reform, and renewed confidence”.

The report calls for regulatory focus and faster digital adoption to help modernize these community-rooted institutions for a future-ready credit ecosystem. By leveraging digital tools, strengthening underwriting frameworks, and improving risk management, UCBs have the opportunity to expand market share while significantly enhancing operational efficiency and customer experience.

While acknowledging the legacy burden of outdated systems, Sahakaar Trends outlines a clear path forward. Initiatives like the Sahakar Credit Engine, Sahakar Paathshaala, and portfolio risk dashboards shall equip UCBs to automate loan processing, monitor credit in real-time, and offer Aadhaar-enabled, app-based lending solutions. Coupled with targeted staff training, these interventions are designed to help UCBs deliver faster, smarter, and more inclusive banking.

The report highlights a sharp evolution in UCBs’ credit portfolio over the last five years. Commercial loans continue to dominate, accounting for 28% of total balances. Housing loans have maintained strong momentum with a 19% CAGR and now contribute 14% to the overall portfolio. Personal loans have grown at an 18% CAGR, making up 6% of balances in the same period. Gold loans posted a standout 52% CAGR, despite comprising just 4% of the portfolio. Auto loans and loans against bank deposits also showed rapid growth, clocking 33% and 23% CAGR, respectively, each accounting for 2% of the portfolio, signalling rising demand for collateral-backed credit in urban markets. Retail business loans have emerged as a key MSME growth driver for UCBs, growing at a robust 24% CAGR and accounting for 12% of their overall portfolio. This surge is driven by rising credit demand from micro-entrepreneurs and informal enterprises across urban and semi-urban markets.

Commercial loans have grown modestly at a 3% CAGR over the past five years. Notably, 37% of commercial loan seekers at UCBs are new-to-credit (NTC) borrowers. Thus, it signals UCBs’ role in expanding credit access to first-time entrepreneurs and small businesses. The report highlights that UCBs are showing stronger credit discipline in this commercial loan segment.

Among borrowers with exposure below INR 1 crore, delinquency rates have dropped from 3.5% in March 2020 to 1.4% by March 2025, outperforming PSU banks, which stood at 3.3% in the same period. A similar trend is visible in the INR 1–10 crore exposure bracket, where UCBs improved from 5% to 3.3%, nearly closing the gap with PSUs, which brought down delinquencies from 3.5% to 1.4%. On the demand side, the outlook remains strong. Over the past five years, credit demand for commercial loans through UCBs has grown faster than for PSUs, with a larger share of applicants falling in the low-risk category.

UCBs are witnessing a notable rise in housing loan demand that reflects growing trust among aspiring homeowners, especially in semi-urban and underserved regions. Between March 2020 and March 2025, housing loan enquiries at UCBs grew 2.8x, peaking at an indexed value of 299 in FY24 and stabilizing at 280, compared to just 1.6x growth for HFCs (indexed at 163). Additionally, UCBs have demonstrated strength in catering to above-prime borrowers, with an average home loan ticket size of INR 25.2 lakh. The share of subprime enquiries dropped from 12% in 2020 to just 9% in 2025.

UCBs are also attracting a more diverse borrower mix, with 20% of housing loan enquiries now coming from new-to-credit customers. Younger borrowers (aged 35 and below) account for 28% of home loan originations, which offers an opportunity to tap the segment with tailored digital offerings and first-time homebuyer solutions. Gender inclusion stands out as a key differentiator, with 71% of UCBs’ housing loan customers being women, compared to 57% for HFCs. Geographically, UCBs hold a slightly higher presence in both metro markets (42%) and rural areas (22%), outperforming HFCs across both segments.

Despite global macro headwinds and rising competition, UCBs have delivered consistent credit growth across business lines. Their deep local presence, trust-based engagement, and high conversion rates, especially in personal loans, where they achieve a 48% conversion, provide a strong foundation for sustained and inclusive expansion.