On 24th February, 2025, Reserve Bank of India made an announcement regarding raising the credit limits for urban co-operative banks (UCBs). It stated that the UCBs can now classify their loans of up to 0.4 percent of Tier I capital or Rs. 25 lakh in category of small-value credits based on whichever of them is higher. The limit of the loans per borrower is increased to Rs. 3 crore which was earlier Rs. 1 crore per borrower.

Changes in regulations for UCBs

In the past, the classification criteria of small-value loans for UCBs was credit up to Rs. 25 lakh or around 0.2 percent of Tier I capital. The limit of the loans per borrower was about Rs. 1 crore.

Reserve Bank of India made changes in the classification of small-value loans of UCBs making it more flexible. It has raised the ceiling limit of loan to Rs. 3 crore per debtor. It also gave the right to categorize loans as small-value loans in case of loans of up to 0.4 percent of Tier I capital or Rs. 25 lakh. These changes in norms will be applicable by immediate effect. 

UCBs in India can now categorize big loans as small-value credits as well. This announcement of RBI came following the business restriction on New India Co-operative Bank and also the board of the bank was superseded. The reason for this is lack of governance in the bank.

Changes in regulations of Housing loans

Apart from increasing the limit on small-value credits, RBI has taken steps to increase the total exposure limit for residential loans to around 25 percent of its total credits and advances. It allowed UCBs to now allocate a bigger portion of their loan portfolio for residential mortgages. Except for housing loans, the exposure of UCBs in the real estate sector is limited to 5 percent of their total loans and advances. It highlights RBI’s actions to diversify loan portfolio as well as make it balanced. 

Reserve Bank of India has made some changes in the limits on residential loans for individuals for various tiers of UCBs. These new changes are in the band of Rs. 60 lakh to Rs. 3 crore. According to central bank of India’s information, the limits on housing credits for individuals in tier-I and tier-II are Rs. 60 lakh and Rs. 1.40 crore, respectively. The limit for tier-II and tier-IV are Rs. 2 crore and Rs. 3 crore, respectively. 

Extension of timeline for provisioning on security receipts

Reserve Bank of India extended the time limit for keeping aside money for investments in security receipts (SRs). Earlier, the time limit was till the financial year 2025-2026. The time limit is extended till the financial year 2027-2028. It will aid in UCBs having a substantial amount of time to comply with the regulations and also manage their finances better. Despite this extension, the provisions made for the specified SRs earlier should be maintained in the future as well.

In the previous financial year, RBI extended the timeline to achieve the target of minimum percentage of small value credits in the total loans and advances of the UCBs until March 2026. 

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