RBI Increases Small Value Loan Ceiling to Rs 3 Crore for Urban Co-operative Banks
The Reserve Bank of India (RBI) has raised the small value loan ceiling for Urban Co-operative Banks (UCBs) to Rs 3 crore per borrower, aiming to support the housing and real estate sectors while maintaining prudential limits.
RbiUrban Cooperative BanksLoan CeilingReal EstateHousingReal Estate NewsFeb 26, 2025
This decision, issued in a circular on February 24, aims to provide UCBs with greater flexibility in their lending practices.
According to the revised definition, the loan ceiling is set at Rs 25 lakh or 0.4 percent of the bank's Tier I capital, whichever is higher.
However, the maximum limit for any borrower remains at Rs 3 crore.
The RBI has clarified that this change will not affect any existing conditions, timelines, and intermediate targets.
The central bank has also imposed strict caps on the aggregate exposure of UCBs to the housing, real estate, and commercial real estate sectors.
These sectors are capped at 10 percent of the total assets of UCBs, with an additional 5 percent allowance for priority sector housing loans.
For individual housing loans, the ceilings are set at Rs 60 lakh for Tier-1 UCBs and Rs 1.4 crore for other UCBs.
These prudential limits have been revised to align with the evolving market dynamics and to ensure that UCBs can continue to operate in a stable and sustainable manner.
Further stipulations include a cap on UCBs' aggregate exposure to residential mortgages not classified as a priority sector.
This exposure should not exceed 25 percent of the total loans and advances made by the UCBs.
Additionally, the exposure to the real estate sector, excluding individual housing loans, is limited to 5 percent of the total loans and advances.
These measures are designed to balance the need for growth in the real estate sector with the need to manage risks effectively.
The RBI's decision to increase the small value loan ceiling to Rs 3 crore is expected to have several positive impacts.
Firstly, it will provide UCBs with more funds to allocate to small and medium-sized enterprises (SMEs) and individual borrowers, potentially boosting economic activity in urban areas.
Secondly, it will help UCBs to diversify their loan portfolios and reduce concentration risks.
Lastly, it will support the housing and real estate sectors, which are crucial for economic development and employment generation.
In conclusion, the RBI's move to increase the small value loan ceiling for UCBs to Rs 3 crore is a significant step towards enhancing the lending capacity of these banks.
It is expected to provide a much-needed boost to the housing and real estate sectors, while ensuring that UCBs operate within prudential limits to maintain financial stability.
Frequently Asked Questions
What is the new small value loan ceiling for Urban Co-operative Banks?
The new small value loan ceiling for Urban Co-operative Banks (UCBs) is Rs 3 crore per borrower.
What is the maximum exposure of UCBs to the housing and real estate sectors?
The aggregate exposure of UCBs to the housing, real estate, and commercial real estate sectors is capped at 10 percent of their total assets.
What is the additional allowance for priority sector housing loans?
UCBs have an additional allowance of 5 percent of their total assets for priority sector housing loans.
What are the individual housing loan ceilings for Tier-1 UCBs and other UCBs?
The individual housing loan ceilings are set at Rs 60 lakh for Tier-1 UCBs and Rs 1.4 crore for other UCBs.
What is the maximum exposure to residential mortgages not classified as a priority sector?
The aggregate exposure to residential mortgages not classified as a priority sector is capped at 25 percent of the total loans and advances made by UCBs.
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