On February 24 2025, the Reserve Bank of India (RBI) revised the norms for Urban Co-operative Banks (UCBs), allowing them to classify loans of up to Rs 25 lakh, or 0.4% of Tier I capital, whichever is higher, as small-value loans, subject to a ceiling of Rs 3 crore per borrower.
- Earlier, UCBs could classify loans of up to Rs 25 lakh, or 0.2% of Tier I capital, as small-value loans, subject to a ceiling of Rs 1 crore per borrower.
Small-Value Loans:
Old Norms:
- Small-value loans were capped at Rs 25 lakh or 0.2% of Tier-I capital (whichever higher), with a maximum ceiling of Rs 1 crore per borrower.
- UCBs were required to ensure 50% of aggregate loans fell under small-value loans by March 2026.
New Norms:
- Definition revised: Loans up to Rs 25 lakh or 0.4% of Tier-I capital (whichever higher), with a higher ceiling of Rs 3 crore per borrower.
- Objective: Helps UCBs meet the 50% small-loan target by 2026.
Real Estate Exposure: Balancing Risk and Flexibility:
Old Norms:
- Aggregate exposure to real estate (including housing, commercial) capped at 10% of total assets.
- Could exceed by 5% only for priority-sector housing loans.
New Norms:
- Priority Sector Exclusion: Housing loans under Priority Sector Lending (PSL) excluded from commercial real estate (CRE) exposure.
- Revised Caps:
- Residential mortgages (non-PSL): Up to 25% of total loans (vs. 10% earlier).
- Real estate (excluding housing loans): Capped at 5% of total loans.
- Builder/developer loans: Limited to 5% of total loans.
Tier-Wise Housing Loan Limits: Catering to Urbanization
Revised Prudential Limits (Per Dwelling Unit):
| UCB Tier | Old Limit | New Limit |
|---|---|---|
| Tier-I (Deposits≤ Rs100 cr) | Rs.60 lakh | Rs.60 lakh |
| Tier-II (Deposits Rs 100–1,000 cr) | Rs.1.40 cr | Rs.1.40 cr |
| Tier-III (Deposits Rs1,000–10,000 cr) | Rs.1.40 cr | Rs.2 cr |
| Tier-IV (Deposits >Rs10,000 cr) | Rs.1.40 cr | Rs.3 cr |
Extended Glide Path for Security Receipts (SRs):
Old Norms:
- Provisioning Requirement: UCBs had to maintain provisions (set aside funds) to cover potential losses from the valuation gap in SRs.
- Deadline: UCBs were required to fully provision for these gaps by March 2026 (FY2026).
New Norms:
- Extended Deadline: The RBI has extended the timeline for provisioning by 2 years, pushing the deadline to March 2028 (FY2028).
What are Security Receipts (SRs)?
Security Receipts (SRs) are financial instruments issued by Asset Reconstruction Companies (ARCs) when banks (including UCBs) sell their Non-Performing Assets (NPAs or bad loans) to these ARCs.
- SRs’ Value: The value of SRs depends on the ARC’s ability to recover money from the defaulted borrower. If the ARC recovers less than expected, the SRs’ value declines, creating a valuation gap.
