RBI’s 2026 Second Amendment Directions for UCB Financial Services: A Detailed Guide
The Reserve Bank of India has issued the Reserve Bank of India (Urban Co-operative Banks – Undertaking of Financial Services) Second Amendment Directions, 2026, substantially revising how Urban Co-operative Banks (UCBs) may undertake agency and referral activities for regulated financial products.
These revised Directions are issued under Section 35A read with Section 56 of the Banking Regulation Act, 1949 and will come into force from January 01, 2027. They modify the earlier Reserve Bank of India (Urban Co-operative Banks – Undertaking of Financial Services) Directions, 2025 (referred to as “the Master Direction”).
At the same time, conduct and customer‑service related norms are being consolidated into a separate framework, namely the Reserve Bank of India (Urban Co-operative Banks – Responsible Business Conduct) Directions, 2025.
This write‑up explains the amendments in a structured and assessee‑friendly manner, focusing on what UCBs must do to remain compliant while distributing products such as mutual funds, insurance, broking services and pension products.
1. Objective and Effective Date
1.1 Purpose of the Second Amendment Directions, 2026
The RBI has revisited the existing rules governing:
- Agency business undertaken by UCBs for third‑party entities; and
- Referral arrangements where UCBs merely refer customers to such entities.
The overarching aims are:
- To clearly demarcate agency business and referral services;
- To standardise the conduct obligations of UCBs when offering regulated financial products and services;
- To ensure that UCBs undertake such activities purely on a fee or commission basis, without taking on underwriting, credit, or investment risk; and
- To strengthen customer protection, disclosure standards, and grievance redressal.
1.2 Commencement
Effective date: All amended provisions under the Reserve Bank of India (Urban Co-operative Banks – Undertaking of Financial Services) Second Amendment Directions, 2026 will apply from January 01, 2027.
2. Key New and Revised Definitions
The Directions substantially rework paragraph 4 of the Master Direction by inserting and modifying critical definitions.
2.1 Agency Business
The substituted definition of “Agency Business” in paragraph 4(1) clarifies that:
A UCB may act as an agent for a Third-party Product and Service Provider (TPPSP) to:
- Market
- Sell
- Promote
- Act as first point of contact for grievance redressal
- Provide related after‑sales services
The UCB’s role is strictly without risk participation. This means:
- The UCB shall not bear underwriting risk;
- The UCB shall not assume any investment risk or principal risk in respect of the third‑party product.
The activities relate to financial products or services such as:
- Insurance
- Mutual funds
- Pension funds, etc.
Note: UCBs may undertake agency business only to the extent permitted under Chapter III of the Master Directions.
Additionally, the previous definition of “Debtor Company” is simply renumbered as sub‑paragraph (1A), without substantive change.
2.2 Referral Services
The revised paragraph 4(10) introduces a refined definition of “Referral Services”:
Under a referral arrangement, a UCB:
- Provides its customers with information about financial products or services of a TPPSP;
- Refers the customer to that TPPSP for further interaction.
However, under the referral model, the UCB must not:
- Continue engagement in distribution;
- Handle ongoing grievance redressal;
- Provide post‑sale services; or
- Undertake activities that resemble a full distribution or agency role.
Note: Referral business too can be carried out only as allowed in Chapter III of the Master Directions.
2.3 Regulated Financial Products and Services
A new sub‑paragraph 4(10A) defines “Regulated financial products and services” as:
- Products and services falling within the regulatory ambit of:
- Reserve Bank of India
- Securities and Exchange Board of India (SEBI)
- Insurance Regulatory and Development Authority of India (IRDAI)
- Pension Fund Regulatory and Development Authority (PFRDA)
- Overseas Regulatory Authorities including IFSCA
UCBs’ distribution and referral activity must relate to such regulated products or services.
2.4 Third-party Product and Service (TPPS) and TPPSP
Two new sub‑paragraphs are inserted after paragraph 4(11):
“Third-party Product and Service (TPPS)” – This term is tied back to the definition under Reserve Bank of India (Urban Co-operative Banks – Responsible Business Conduct) Directions, 2025. It denotes the financial product or service of a third‑party that the UCB is distributing or referring.
“Third-party Product and Service Provider (TPPSP)” – This is the entity:
- That enters into an agency or referral arrangement with a UCB; and
- Whose regulated financial product or service is being offered to the UCB’s customers.