RBI Proposes Higher Home Loan Limits and New Lending Norms for Rural Co-operative Banks

The Reserve Bank of India (RBI) has proposed a new regulatory framework for Rural Co-operative Banks (RCBs), introducing higher housing loan limits, revised borrower exposure norms and changes to lending rules. The proposals are part of two draft regulations released for public comments. 

The draft framework follows the announcements made in the RBI's Statement on Developmental and Regulatory Policies on August 5. If finalised, the revised directions will come into effect from April 1, 2027. 

RBI Proposes Higher Housing Loan Limits 

One of the key proposals is an increase in the maximum housing loan amount that Rural Co-operative Banks can sanction, based on their deposit size. 

Under the draft: 

The RBI has also proposed allowing RCBs with deposits exceeding ₹1,000 crore to determine housing loan tenure and moratorium periods through Board-approved policies. For other banks, the maximum housing loan tenure would remain 20 years, including any moratorium, with the moratorium for under-construction properties capped at 24 months. 

Read More: RBI Proposes Ban on Revolving Credit Products by Most NBFCs; Credit Card Issuers Exempt 

New Exposure and Lending Limits Proposed 

The RBI has proposed new prudential exposure limits to strengthen risk management at Rural Co-operative Banks. 

Under the draft framework: 

The central bank has also proposed removing most sector-specific exposure limits, except those for the real estate sector. Rural Co-operative Banks would instead be required to set Board-approved internal limits based on their business model and risk assessment. 

For the real estate sector, aggregate exposure would remain capped at 15% of total loans and advances, while lending to real estate other than individual housing loans would be limited to 5%. 

Additionally, aggregate unsecured advances would be capped at 15% of total loans and advances, with borrower-level limits linked to the size of the bank. 

Other Key Proposals 

The draft regulations also propose allowing Rural Co-operative Banks to lend to nominal members, where permitted under their by-laws and applicable co-operative laws. Such loans would be restricted to those backed by deposits, gold or silver ornaments, life insurance policies or government securities, within Board-approved limits. 

The RBI has invited comments from regulated entities and other stakeholders on the draft regulations until August 28, 2026. 

Conclusion 

The RBI's draft framework proposes significant changes for Rural Co-operative Banks, including higher housing loan limits, revised borrower exposure norms and new risk management requirements. If implemented, the new regulations will take effect from April 1, 2027, after the public consultation process concludes. 

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