Context:
The Reserve Bank of India (RBI) has lifted restrictions on the Urban Cooperative Banks with regard to lending limits to small value borrowers and dedicated real estate sector exposure, thereby giving greater flexibility to UCBs with regards to conducting their affairs, with due regard to sound risk management.
Key Highlights:
Increase in Small Loan Limit
- Old Limit: ₹25 lakhs or 0.2% of Tier I capital (maximum of ₹1 crore for a single borrower).
- New Limit: ₹25 lakhs or 0.4% of Tier I capital (maximum of ₹3 crore for a single borrower).
- Target: 50% of total loans should be small-value loans by March 31, 2026.
- Check: The board of UCBs must monitor portfolio quality and may have to lower the limit if quality deteriorates.
Increased Exposure to Property & Real Estate
- UCBs can go beyond the 10% cap on real estate project loans by 5%, provided that it is earmarked for loans for houses under priority sector lending.
- Newly prudential limit for housing loans are:
- UCB (Tier I): ₹60 lakh per dwelling unit
- UCB (Tier II): ₹1.4 crore per dwelling unit
- UCB (Tier III): ₹2 crore per dwelling unit
- UCB (Tier IV): ₹3 crore per dwelling unit
Amended And Changed Exposure Limits
- Housing loans (non-priority sector): Max 25% of total loans & advances.
- Real estate sector (excluding housing loans to individuals): Max 5% of total loans and advances.
Impact on UCBs
- Enhanced lending flexibility to fast-track their business development without violating any regulatory constraints.
- More opportunities to fund housing and real estate projects under a tightly controlled environment.
- Competition with commercial banks may intensify, especially in housing loans and SME financing.
Source: Business Standard
