New Delhi: Urban co-operative banks (UCBs) have nearly doubled their loan book over the last five years, but their footprint in India’s overall lending market remains stubbornly small—1.8 percent—according to the second edition of ‘Sahakaar Trends February 2026’ report, released last Friday.
As of 30 September 2025, the outstanding loans of UCBs stood at Rs 3.4 lakh crore, marking a 1.9-time growth from Rs 1.8 lakh crore in September 2020, according to the report written jointly by the TransUnion CIBIL credit information company and the National Urban Cooperative Finance and Development Corporation, an umbrella organisation managing UCBs.
Yet, even after the sharp expansion in loans, UCBs account for only 1.8 percent of industry’s outstanding loans—down from 2.2 percent five years ago.
According to the report, this signals that while the sector has grown over time, it has not kept pace with the broader credit market.
The report identifies operational capacity—not borrower demand or risk appetite—as the main factor limiting UCBs’ growth.
It finds that execution, particularly the speed and predictability of credit origination and disbursement, is the central challenge to UCB growth.
This challenge comes despite the sector’s deep reach.
The report notes that as of FY 2025, 1,400+ UCBs were serving more than 90 million customers, mobilising deposits of Rs 5.84 lakh crore and extending advances of Rs 3.7 lakh crore.
The report suggests that UCBs struggle to match the efficiency and turnaround time expected in a digitised lending environment.
“The longer time to disbursement indicates execution-related friction within the credit process, rather than risk aversion. Slower turnaround times, rather than borrower quality, remain the primary driver of leakage in commercial lending,” the report notes.
The lending portfolio, though, is seeing clear signs of diversification.
Credit remains concentrated in eight core products, which, together, constitute 83 percent of the total outstanding loans of UCBs.
At the top is commercial lending, accounting for 30 percent of the UCBs’ outstanding total loans. Housing loans account for 14 percent of the total. Retail business loans account for 12 percent of the total amount. Loans against property and personal loans also contribute to a growing share each.
Accounting for just five percent of the UCBs’ loan book, gold loans have emerged as the fastest-growing segment. Over the past five years, the cumulative annual growth rate (CAGR) of gold loans has been 49 percent.
The report notes that demand for gold loans is driven by “small-ticket, short-tenure borrowing needs of households and small businesses.”
“Gold loans also show high conversion efficiency,” the report says, adding that credit products with “simple documentation and faster execution convert demand into balances more reliably”.
The report also highlights improving asset quality, indicating that underwriting discipline has strengthened across the sector.
“Asset quality has continued to improve,” it states, noting that the gross non-performing asset (GNPA) ratio moderated to 7.6 percent by September 2025—down from 9.3 percent a year earlier.
However, better asset quality has not automatically translated into better competitiveness.
The report highlights that UCBs are losing out due to slower credit delivery.
In commercial lending, UCBs may have a higher conversion rate than PSU banks.
However, only 45 percent of the enquiries convert into disbursements within 15 days—compared to 61 percent across public sector undertaking banks.
In housing loans, too, turnaround time lags.
As many as 47 percent of them were disbursed within 30 days, compared to 66 percent for the housing finance companies.
The report underlines that UCB customers are losing out to commercial banks.
It notes that between April and September 2025, nearly 3,000 UCB retail borrowers took commercial loans from PSU banks, which combined came to Rs 724 crore. That sum includes Rs 442 crore reportedly taken by low- and medium-risk borrowers.
“This gap highlights a clear execution constraint within UCBs. Faster credit turnaround, better-aligned commercial offerings, and targeted cross-selling, within the existing retail base, could help capture this latent demand,” the report states.
Ultimately, the report suggests that the sector is at a turning point—the next phase of UCBs’ growth lies in “transforming strong relationship pipelines into predictable balance-sheet outcomes”.
It adds, “Strengthening execution capability, supported by digitisation, therefore represents a significant opportunity for UCBs to improve credit delivery, retain high-quality borrowers, and expand lending within existing risk frameworks.”
(Edited by Madhurita Goswami)
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