In a significant move aimed at providing much-needed relief to Urban Cooperative Banks (UCBs), the Reserve Bank of India (RBI) has addressed the long-standing demands of co-operators associated with UCBs.
RBI has doubled the limit for small value loans and increased housing loan limits for Tier 3 and Tier 4 UCBs, while also introducing a separate cap for builder loans.
A key development in the revised norms is that housing loans under the Priority Sector Lending (PSL) category have been excluded from the commercial real estate (CRE) sector classification, allowing more flexibility for UCBs to finance individual home buyers.
The Reserve Bank of India (RBI) has doubled the limit for small value loans, providing greater lending flexibility to Urban Cooperative Banks (UCBs). Previously, the limit was set at 0.2% of Tier I capital, with a maximum cap of Rs 1 crore. Under the revised norms, the limit has been increased to 0.4% of Tier I capital, with a new maximum cap of Rs 3 crore per borrower.
The RBI has introduced revised individual housing loan limits for Tier 3 and Tier 4 UCBs, while the limits for Tier 1 and Tier 2 UCBs remain unchanged.
The updated loan ceilings per borrower are as follows: For Tier 1 UCBs, the maximum housing loan limit is Rs 60 lakh, For Tier 2 UCBs, the loan ceiling has been set at Rs 1.40 crore, For Tier 3 UCBs, borrowers can avail housing loans up to Rs 2 crore and For Tier 4 UCBs, the highest loan limit is Rs 3 crore.
This change is expected to provide greater financial flexibility to UCBs, allowing them to offer higher-value housing loans, particularly in urban and metropolitan areas, where real estate costs are significantly higher.
A major relief for UCBs comes in the form of exemption for housing loans under Priority Sector Lending (PSL) from CRE exposure norms. This means that home loans falling under PSL will no longer be considered part of the banks’ commercial real estate exposure.
Additionally, the cap on other housing loans has been revised. Earlier, such loans were limited to 10% of total assets, but under the new rules, they will be linked to total loans and advances, with a new limit of 25%.
Furthermore, loans to builders and developers have been separately capped at 5% of total loans and advances. This ensures a clear distinction between individual home loans and real estate sector exposure, helping UCBs manage risks more efficiently.
These regulatory changes mark a major boost for UCBs, providing them with greater operational flexibility while maintaining prudent risk management. The new norms are effective immediately.
