Barely two weeks after Mumbai-based New India Co-operative Bank ran into trouble and business restrictions had to be imposed, the Reserve Bank of India has introduced some changes in the lending norms of urban co-operative banks (UCBs).

The central bank on Monday revised norms for UCBs relating to small-value loans and real estate exposure limits while extending the timeline for provisioning requirements for investment in security receipts (SRs).

The RBI said it has issued revised prudential norms with a view to provide greater operational flexibility to UCBs without diluting the regulatory objectives. The revised regulations will come into effect immediately.

Real estate exposure

As per the new norms, the aggregate exposure of UCBs to residential mortgages (housing loans to individuals), other than the priority sector, should not exceed 25% of their total loans and advances.  Also, aggregate exposure of a UCB to the real estate sector, excluding individual housing loans, is to be capped at 5% of their total assets.  

At present, the aggregate exposure to housing, real estate and commercial real estate loans is capped at 10% of total assets. This ceiling can be exceeded by an additional 5% of total assets for housing loans to individuals under the priority sector classification. 

The RBI has also introduced individual housing loan limits for the UCBs. The loan limit for Tier-I UBCs has been set at Rs 60 lakh per dwelling unit, for Tier-II UCBs at Rs 1.4 crore, for Tier-III banks at Rs 2 crore and tier-4 banks at Rs 3 crore.

Currently, the cap for individual housing loans is at Rs 60 lakh per individual borrower for Tier-I UCBs and Rs 1.4 crore for all other UCBs.

Small-value loans

RBI has revised the definition of small-value loans as loans of not more than Rs 25 lakh or 0.4% of the bank’s Tier-I capital, whichever is higher, subject to a ceiling of Rs 3 crore per borrower.

Currently, small-value loans are not more than Rs 25 lakh or 0.2% of Tier-I capital, whichever is higher, subject to a maximum of Rs 1 crore per per borrower. 

UCBs are required to follow the prescribed glide path for small-value loans to have at least 50% of their aggregate loans and advances by 31 March 2026. 

All other conditions, as well as the timelines and the intermediate targets remain unchanged. However, boards of the UCBs should periodically review the portfolio behaviour and quality under different loan-size categories and may consider fixing lower ceilings wherever necessary, the RBI said.

Provisioning for investment in security receipts extended 

The RBI has also extended the five-year timeline for provisioning requirement for investment in security receipts to 2027–28 from the previous deadline of 2025–26.