The Reserve Bank of India (RBI) has proposed significant changes to the unsecured lending framework for Urban Co-operative Banks (UCBs) with the release of the draft Urban Co-operative Banks, Concentration Risk Management (Amendment) Directions, 2026.
Under the draft norms, UCBs will be permitted to extend unsecured loans up to 20 per cent of their total loans and advances, a sharp increase from the existing ceiling of 10 per cent of total assets. The proposed revision is intended to provide greater operational flexibility to UCBs while retaining prudential safeguards.
The RBI has also rationalised the definition of unsecured advances, bringing clarity on the classification of exposures based on the realisable value of security. Certain categories of advances, such as short-tenor trade bills, receivables not overdue beyond prescribed limits, and salary-linked loans supported by statutory deduction mechanisms, have been excluded from being treated as unsecured.
Further, UCBs with enabling provisions in their by-laws will be allowed to extend credit facilities to nominal members. This includes consumer durable loans of up to Rs 2.5 lakh per borrower, subject to compliance with the applicable regulatory framework.
To ensure a non-disruptive transition, the RBI has proposed that existing loans which do not conform to the revised norms will be allowed to run till maturity, without renewal or enhancement. The draft amendment directions are proposed to come into force from October 1, 2026, following finalisation after public consultation.
Public comments and feedback on the draft directions have been invited by the RBI up to March 4, 2026.
