The RBI has announced the Third Amendment Directions for urban co-operative banks, facilitating a temporary removal of the interest rate ceiling on new deposits. This update is expected to bolster deposit acquisition in the banking sector.
RBI Releases Third Amendment Directions for Urban Co-operative Banks
The Reserve Bank of India (RBI) has issued the Third Amendment Directions on August 25, 2026, concerning interest rates applicable to urban co-operative banks. This amendment allows for the temporary withdrawal of the interest rate ceiling on fresh deposits, promoting competitive interest offerings to attract deposits.
This directive builds on the RBI's previous Directions issued on November 28, 2025, and later updated on June 17, 2026. By enabling urban co-operative banks to offer higher interest rates, the RBI aims to enhance their liquidity position and improve the overall health of the banking sector.
The implications of this update are profound as it equips urban co-operative banks with the flexibility needed to respond to market conditions and client expectations, ultimately serving to enhance their deposit mobilization efforts.
“With the removal of the ceiling, banks can now competitively market their deposit products,” the RBI noted in its press release.
This amendment is relevant for practitioners in banking law, highlighting the importance of understanding the ramifications of such regulatory changes on strategic deposit management and client advisory roles.
Citations
- Reserve Bank of India (Urban Co-operative Banks – Interest Rate on Deposits) Directions (2026) RBI/2026-27/247