RBI Allows Co-operative Banks to Invest up to 5% of Owned Funds in NABARD’s Shared Service Entity

The Reserve Bank of India (RBI), through its Department of Regulation, issued Notification dated September 26, 2025, allowing State Co-operative Banks (StCBs) and Central Co-operative Banks (CCBs) to invest in the share capital of a Shared Service Entity (SSE) established by NABARD (National Bank for Agriculture and Rural Development).

This move comes as part of the Reserve Bank of India (Investments in Non-SLR Instruments by State / Central Co-operative Banks) Directions, 2025, which amends the earlier guidelines issued in 2016.

Under the earlier framework, co-operative banks were permitted to invest only in specific non-SLR (Statutory Liquidity Ratio) instruments, subject to strict limits and restrictions. Following RBI’s regulatory approval in April 2025 for NABARD’s proposal to set up a Shared Service Entity (SSE), the central bank decided to revise its instructions to allow co-operative banks to participate in this initiative.

The Shared Service Entity has been envisioned as a common platform to provide shared technological and operational services to State and Central Co-operative Banks, aimed at strengthening their infrastructure, improving efficiency, and supporting modernization.

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According to the new directions, RBI has now included the share capital of SSE as an eligible non-SLR instrument under the investment norms for StCBs and CCBs. Each State or Central Co-operative Bank is allowed to invest up to 5% of its owned funds (which includes paid-up share capital and reserves) in the share capital of the SSE.

This investment will:

• Not be counted towards the overall prudential limit on non-SLR investments, and
• Not be subject to the restriction on investment in unlisted non-SLR securities.

This means co-operative banks can subscribe to the SSE’s share capital without affecting their existing investment limits or compliance with unlisted investment rules.

The new directions have been issued under the powers vested in RBI by Section 35A read with Section 56 of the Banking Regulation Act, 1949, and come into immediate effect from September 26, 2025.

The RBI expects that participation in the Shared Service Entity will help co-operative banks access shared resources, improve governance, and adopt new technology, thereby enhancing their capacity to serve rural and semi-urban areas more effectively.

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