The Reserve Bank of India (RBI) has introduced significant revisions in the lending norms for Urban Cooperative Banks (UCBs), aimed at providing greater operational flexibility and promoting financial inclusion. The central bank has redefined small value loans and adjusted the exposure limits in the real estate sector, effective immediately. These changes are designed to facilitate access to credit for small borrowers while ensuring prudent risk management.
Under the revised definition, small value loans for UCBs are now identified as loans not exceeding ₹25 lakh or 0.4 percent of their Tier I capital, whichever is higher. Additionally, there is a ceiling of ₹3 crore per borrower. This adjustment is expected to enable UCBs to better serve their communities by expanding credit availability to smaller borrowers who were previously underserved.
Furthermore, the RBI has revised the aggregate exposure limits for UCBs to the real estate sector. The overall exposure, excluding housing loans to individuals, should not surpass five percent of a UCB's total loans and advances. However, the revised guidelines allow UCBs to exceed the previous ceiling of ten percent in terms of their aggregate exposure to housing, real estate, and commercial real estate loans. An additional five percent of total assets can now be allocated for housing loans to individuals, adhering to the eligibility criteria for priority sector classification.
In addition to redefining small value loans and exposure limits, the RBI has also revised prudential limits on housing loans for different tiers of UCBs. Tier I UCBs can extend loans up to ₹60 lakh per dwelling unit, Tier 2 UCBs up to ₹1.40 crore, Tier 3 UCBs up to ₹2 crore, and Tier 4 UCBs up to ₹3 crore per dwelling unit. These changes are intended to align lending practices with market demands while maintaining a secure financial environment.
"Boards of UCBs, however, shall periodically review the portfolio behavior and quality under different loan-size categories and where necessary, may consider fixing lower ceilings" – RBI
These updated regulations are part of the RBI's ongoing efforts to ensure that UCBs can effectively support economic growth and stability. By refining the definitions and limits associated with lending, the central bank aims to foster a more inclusive financial system that caters to a broader range of borrowers.