The urban cooperative banks finally have a reason to rejoice. The Reserve Bank of India has lifted many restrictions which were earlier posed on the modus operandi of these urban co-ops.

Speaking on this move by RBI, Deputy Governor Usha Thorat said, "UCBs' area of operation is different from MFIs. Being community-based entities, UCBs cater to the middle and lower-middle classes. The current set of policies should be seen as a move to incentivise and provide an enabling framework to the well-managed and strong UCBs."

"It's a dramatic, wonderful Diwali gift," said SK Banerjee, MD of the largest co-operative lender, Saraswat Co-operative Bank.

RBI said that it felt some of the old restrictions coming in the growth track of these banks. "UCBs are also important instrument so far as financial inclusion goes," Ms Thorat said.

Currently, unsecured lending of UCBs is restricted to Rs 2 lakhs. RBI has decided that housing, real estate and commercial real estate loans of UCBs will be linked to total assets instead of deposits.