RBI raises UCBs' small-value loans per borrower cap to Rs 3 crore

To provide greater flexibility to urban cooperative banks (UCBs) without compromising on regulatory objectives, the Reserve Bank of India (RBI) on Monday raised the ceiling these banks have on small-value loans per borrower and increased the limit for a UCB’s aggregate exposure to the real estate sector. 

According to RBI norms, UCBs are required to have at least 50 per cent of their aggregate loans and advances consisting of small value loans by March 31, 2026. Earlier, RBI defined small loans as loans of value not more than ₹25 lakh or 0.2 per cent of UCBs Tier-I capital, whichever is higher, subject to a maximum of ₹1 crore per borrower. 

Now, RBI has revised the definition of small value loans as loans of value not more than ₹ 25 lakh or 0.4 per cent of their Tier-I capital of UCBs, whichever is higher, subject to a ceiling of ₹3 crore per borrower. 

 “Boards of UCBs, however, shall periodically review the portfolio behaviour and quality under different loan-size categories and where necessary, may consider fixing lower ceilings”, the RBI said.  

Additionally, the RBI has also said that the UCBs now can exceed the 10 per cent ceiling in terms of their aggregate exposure to housing, real estate and commercial real estate loans by an additional 5 per cent of total assets for the purpose of grant of housing loans to individuals as per the eligibility limits for priority sector classification. 

RBI has also revised prudential limits on housing loans for UCBs, with Tier-I UCBs allowed to offer loans of up to ₹60 lakh per dwelling unit; Tier-II UCBs up to ₹1.40 crore per dwelling unit; Tier-III UCBs up to ₹2 crore per dwelling unit; and Tier-IV UCBs up to ₹3 crore per dwelling unit. 

Meanwhile, RBI has said aggregate exposure of a UCB to residential mortgages (housing loans to individuals), other than those eligible to be classified as priority sector, shall not exceed 25 per cent of its total loans and advances. And, aggregate exposure of a UCB to the real estate sector, excluding housing loans to individuals, shall not exceed five per cent of its total loans and advances.

 

KEY CHANGES

 

*  UCBs required to have at least 50% of aggregate loans and advances consisting small value loans by March 31, 2026

*  RBI revised the definition of small value loans

*  Revised prudential limits on housing loans for UCBs as follow:

 

>Tier-I: Up to ₹60 lakh per dwelling unit

>Tier-ll: Up to ₹1.40 cr per dwelling unit

>Tier-lll:  Up to ₹2 cr per dwelling unit

>Tier-IV: Up to ₹ 3 cr per dwelling unit