The Reserve Bank of India (RBI) has proposed a broad-based overhaul of the lending and disclosure framework for Urban Co-operative Banks (UCBs) with the release of three draft Amendment Directions for public consultation. These proposals follow the announcements made in the Statement on Developmental and Regulatory Policies dated February 6, 2026.
One of the key proposals relates to unsecured lending. The RBI has proposed to raise the aggregate ceiling for unsecured loans and advances to 20 per cent of total loans and advances, as per the audited balance sheet of the preceding financial year.
In parallel, the definition of unsecured advances has been rationalised to bring greater clarity and consistency in classification, based on the realisable value of security. Certain categories of advances, such as short-term trade bills and receivables within prescribed limits, have been excluded from being treated as unsecured.
The draft directions also propose revised limits for individual unsecured loans, linked to the tier of the UCB. Accordingly, Tier 1 UCBs may extend unsecured loans up to Rs 5 lakh, Tier 2 up to Rs 7.5 lakh, and Tier 3 and Tier 4 UCBs up to Rs 10 lakh per borrower, within the overall unsecured lending ceiling prescribed under the concentration risk framework.
Another key proposal relates to lending to nominal members. Subject to enabling provisions in their by-laws, UCBs may extend loans to nominal members for the purchase of consumer durables up to Rs 2.5 lakh per borrower.
Loans against fixed deposits, gold and silver ornaments, life insurance policies, and government securities may also be extended within limits laid down under Board-approved policies.
The RBI has also proposed regulatory relaxations in housing loan norms for Tier 3 and Tier 4 UCBs, permitting them to determine the tenor and moratorium period for housing loans through Board-approved policies. However, Tier 1 and Tier 2 UCBs will continue to be governed by prescribed ceilings.
The draft further clarifies that moratoriums shall be applicable only to housing loans for construction, and not for the purchase of completed houses.
To strengthen transparency, UCBs will be required to make enhanced disclosures in their financial statements relating to unsecured advances, asset quality, provisioning, and lending to nominal members.
The proposed amendments are scheduled to come into force from October 1, 2026, or earlier if adopted in entirety by a UCB. Existing loans that do not conform to the revised norms will be allowed to run till maturity without renewal or enhancement. Public comments on the draft directions have been invited up to March 4, 2026.
