RBI Finalises Lending and Disclosure Norms for Urban Co-operative Banks

The Reserve Bank of India has issued amendment directions for Urban Co-operative Banks to update lending and disclosure norms. The changes focus on unsecured lending limits, housing loan conditions, and enhanced transparency requirements.

While providing greater operational flexibility, the framework retains key prudential safeguards. The amendments will be effective from October 1, 2026, or earlier if adopted by individual banks.

Revised Unsecured Lending Framework

Under the amended norms, UCBs are permitted to maintain aggregate unsecured loans up to 20% of total advances. Unsecured loans of up to ₹50,000 per borrower under the priority sector are excluded from this ceiling for banks compliant with the eligibility criteria for business authorisation.

Within the overall limit, borrower-level ceilings have been introduced to manage concentration risk. These caps are set at ₹5 lakh for Tier 1 banks, ₹7.5 lakh for Tier 2 banks, and ₹10 lakh for Tier 3 and Tier 4 UCBs.

Limits on Loans to Nominal Members

The central bank has imposed a specific cap on loans granted to nominal members for consumer durable purchases. Such loans are limited to ₹2.5 lakh per borrower and are subject to enabling provisions in the respective bank’s by-laws.

This measure aims to standardise exposure to nominal members across the sector. It also seeks to ensure that lending to non-regular members remains within defined risk parameters.

Housing Finance Norms Across Tiers

Housing loan norms have been differentiated based on bank tiers to reflect varying risk management capabilities. Tier 3 and Tier 4 UCBs are allowed to decide housing loan tenure and moratorium periods under Board-approved policies.

Tier 1 and Tier 2 banks will continue to face a maximum housing loan tenure of 20 years, including a moratorium of up to 24 months. The moratorium is permitted only for under-construction residential properties.

Prudential Safeguards and Disclosure Requirements

As part of risk containment measures, UCBs have been prohibited from extending loans against fixed deposits held with other banks. However, lending against a bank’s own deposits is permitted, subject to Board-approved policies.

The definition of unsecured advances has also been rationalised, allowing exposures such as loans backed by enforceable salary deductions and short-term receivables to be treated as secured. To enhance transparency, banks must disclose detailed data on unsecured advances and loans to nominal members, including asset quality indicators, provisioning, and borrower composition.

Read More: RBI Launches Mission SAKSHAM for Urban Cooperative Banks.

Conclusion

The amended RBI directions introduce uniformity and clarity across the lending practices of Urban Co-operative Banks. By revising unsecured lending limits and housing finance norms, the framework balances flexibility with prudential oversight.

Enhanced disclosure requirements are expected to improve transparency and risk monitoring. Overall, the changes aim to strengthen governance and resilience in the UCB sector ahead of full implementation from October 1, 2026.

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