UCB's priority sector advancements surge by 27% in FY23, according to RBI data.

Synopsis : UCBs excel in priority sector lending, with a 27% surge in FY23, surpassing RBI targets, mainly supporting MSMEs.

The latest report from the Reserve Bank of India, titled "Primary (Urban) Co-operative Banks' Outlook 2022-23," revealed a notable surge of over 27% in advances by Urban Co-operative Banks (UCBs) to the priority sector during the fiscal year 2023, compared to the preceding year. In FY23, UCBs' advances reached Rs 2.2 trillion, a significant increase from Rs 1.73 trillion in FY22. Notably, a substantial portion of these advances, totaling Rs 1.3 trillion in FY23, was allocated to Micro, Small & Medium Enterprises (MSMEs), marking an uptick from Rs 1 trillion in FY22. MSMEs received almost 40% of UCBs' total lending to the priority sector in FY23, up from 34.27% the previous year, with micro enterprises accounting for the largest share at 17.23%.

Jyotindra M Mehta, president of the National Federation of Urban Cooperative Banks and Credit Societies Ltd (Nafcub), attributed this surge to the introduction of simplified credit rules for MSMEs and a significant rise in credit demand post-Covid. Mehta also pointed out that due to their limited loan portfolios, most UCBs tend to focus on lending to micro lenders while avoiding exposure to large corporates.

Despite the Reserve Bank of India setting a 60% target for priority sector lending by UCBs until FY24, UCBs had already surpassed this target with a commendable achievement of 66.88% in FY23. In contrast, scheduled commercial banks achieved a 44.7% target in priority sector lending by March 31, 2023. Sanjay Agarwal, senior director at CARE Ratings, emphasized the significant growth in priority sector lending resulting from MSMEs gradually resuming normal operations after the Covid pandemic.

As of March 31, there were a total of 1,502 UCBs operating across India, with Maharashtra hosting the highest number at 475. The western region of the country accommodated 693 UCBs. Collectively, these banks held total deposits amounting to Rs 5.3 trillion and total advances of Rs 3.3 trillion.