UCB advances to priority sector up over 27% in FY23, shows RBI data

A majority of the advances of UCBs was given to MSMEs, amounting to Rs 1.3 trillion in FY23

[This report has been updated]

The advances of Urban Co-operative Banks (UCBs) to the priority sector surged more than 27 per cent in the financial year 2023, compared to the previous year, the Reserve Bank of India's recent report--Primary (Urban) Co-operative Banks' Outlook 2022-23-- showed.

The RBI report put the advances for UCBs in FY23 at Rs 2.2 trillion, up from Rs 1.73 trillion in FY22.  

A majority of the advances of UCBs was given to MSMEs (micro, small & medium enterprises), amounting to Rs 1.3 trillion in FY23 against Rs 1 trillion  in FY22. 

Of the total lending by UCBs to the priority sector, almost 40 per cent was to the MSMEs in FY23 compared to 34.27 per cent last year. Within MSMEs, micro enterprises had the highest share at 17.23 per cent.  

“This surge has happened because there are now simpler credit rules for  MSMEs. And we have seen a huge increase in the credit demand post Covid,” said Jyotindra M Mehta, president, National Federation of Urban Cooperative Banks and Credit Societies Ltd (Nafcub).

Mehta added that since most UCBs have limited loan books, they mainly lend to micro lenders and avoid large corporates.

The RBI has set a target of 60 per cent for priority sector lending by UCBs till FY24. However, UCBs had already achieved 66.88 per cent in FY23. 

At the same time, scheduled commercial banks' achievement under the priority sector lending as on March 31, 2023, stood at 44.7 per cent. Both public and private sector banks, including foreign banks, have also achieved the prescribed 40 per cent overall priority sector lending (PSL) target during 2022-23.

“MSMEs resuming normal operations after Covid pandemic has led to significant growth in their business, leading to increase in priority sector lending,” said Sanjay Agarwal, senior director at CARE Ratings.

As on March 31, there were 1,502 UCBs in India, with 10,117 branches across the country. It has total deposits of Rs 5.3 trillion and total advances of Rs 3.3 trillion. Maharashtra has the highest number of UCBs with a total of 475. Western region of the country has 693 UCBs till date.