- The Reserve Bank of India (RBI) announced on February 24 that Urban Co-operative Banks (UCBs) must limit their total exposure to housing loans for individuals to 25% of their total loans and advances.
- This decision aims to give these banks more operational flexibility while still ensuring regulatory oversight.
- Currently, UCBs are restricted to a total exposure of 10% of their assets for housing, real estate, and commercial real estate loans, with an additional 5% allowance specifically for individual housing loans.
- The new guidelines are designed to provide more flexibility without compromising regulatory goals.
- The RBI stated, “After a review, it has been decided to redefine small value loans as those not exceeding Rs 25 lakh or 0.4% of their Tier I capital, whichever is higher, with a maximum limit of Rs 3 crore per borrower.” As it stands, UCBs are required to ensure that by March 31, 2026, at least 50% of their total loans are classified as small-value loans, which are capped at Rs 25 lakh or 0.2% of their Tier I capital, whichever is higher, with a maximum of Rs 1 crore per borrower.
The Reserve Bank of India (RBI) announced on February 24 that Urban Co-operative Banks (UCBs) must limit their total exposure to housing loans for individuals to 25% of their total loans and advances. This decision aims to give these banks more operational flexibility while still ensuring regulatory oversight.
Currently, UCBs are restricted to a total exposure of 10% of their assets for housing, real estate, and commercial real estate loans, with an additional 5% allowance specifically for individual housing loans. The new guidelines are designed to provide more flexibility without compromising regulatory goals.
The RBI stated, “After a review, it has been decided to redefine small value loans as those not exceeding Rs 25 lakh or 0.4% of their Tier I capital, whichever is higher, with a maximum limit of Rs 3 crore per borrower.”
As it stands, UCBs are required to ensure that by March 31, 2026, at least 50% of their total loans are classified as small-value loans, which are capped at Rs 25 lakh or 0.2% of their Tier I capital, whichever is higher, with a maximum of Rs 1 crore per borrower.
Furthermore, the RBI has stipulated that UCBs’ total exposure to the real estate sector, excluding individual housing loans, cannot exceed 5% of their total loans and advances.
The central bank has also categorized UCBs into four tiers based on their deposit sizes:
Tier 1: Unit UCBs, salary earners’ UCBs, and those with deposits up to Rs 100 crore.
Tier 2: UCBs with deposits between Rs 100 crore and Rs 1,000 crore.
Tier 3: UCBs with deposits between Rs 1,000 crore and Rs 10,000 crore.
Tier 4: UCBs with deposits exceeding Rs 10,000 crore.