RBI Proposes 20% Cap on Unsecured Loans for Urban Co-Operative Banks

The Reserve Bank of India (RBI) has proposed to increase the limit on unsecured advances by urban co-operative banks (UCBs) to 20% of total advances of the preceding financial year.  

The proposal replaces the earlier cap of 10% of total assets and is part of draft norms aimed at rationalising the definition of unsecured lending across the sector. 

Reports suggest that the central bank has invited public feedback on the draft until March 4, 2026. The revised norms are scheduled to come into effect from October 1, 2026, or earlier if adopted in full by individual banks. 

Tier-Wise Caps on Individual Unsecured Loans 

Under the draft, the RBI has proposed separate ceilings for individual unsecured loans within the overall 20% limit. The cap will be ₹5 lakh for Tier 1 UCBs, ₹7.5 lakh for Tier 2 banks, and ₹10 lakh for Tier 3 and Tier 4 institutions. 

These limits are intended to control single-borrower exposure while allowing banks more room within the aggregate unsecured lending ceiling. 

Revised Rules for Nominal Members 

The RBI has also proposed changes to lending rules for nominal members. Loans for the purchase of consumer durables may be raised to ₹2.5 lakh per borrower, subject to the bank’s by-laws allowing such lending under the relevant state co-operative Acts. 

Banks may also extend loans to nominal members against fixed deposit receipts, gold and silver ornaments, life insurance policies, and government securities, within board-approved limits. 

Housing Loan Tenor and Moratorium Norms 

The draft introduces tier-based housing loan rules. For Tier 1 and Tier 2 UCBs, the maximum tenor will remain capped at 20 years, including any moratorium period. The moratorium will be limited to 18 months and allowed only for construction-linked loans. 

Tier 3 and Tier 4 banks will be allowed to decide loan tenors and moratorium periods under board-approved credit policies. These policies must consider borrower life expectancy and the longer tenure of housing loans. 

Read More: RBI Imposes Penalty On Bharat Co-operative Bank For Deposit Rate Non-Compliance! 

Conclusion 

The draft guidelines set out revised limits on unsecured lending, housing loans, and credit to nominal members across different UCB tiers, with implementation planned from October 2026. 

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