RBI Raises Small Loan Limit for UCBs to ₹3 Crore

The Reserve Bank of India (RBI) has revised the small-value loan ceiling for Urban Co-operative Banks (UCBs), increasing it to ₹3 crore per borrower. This change is part of a broader initiative to redefine small-value loans and strengthen the financial stability of UCBs. While the new cap allows greater lending flexibility, RBI has retained existing conditions, timelines, and prudential norms to ensure responsible credit allocation.

Key Highlights of RBI’s Announcement

Revised Small-Value Loan Definition

• Loans classified as small value should not exceed ₹25 lakh or 0.4% of Tier I capital, whichever is higher.
• The maximum ceiling is capped at ₹3 crore per borrower.
• All existing conditions, timelines, and intermediate targets remain unchanged.

Mandated Loan Composition for UCBs

• UCBs must ensure that at least 50% of their total loans and advances consist of small-value loans by March 31, 2026.
• Bank boards are required to periodically review loan portfolios and may set lower lending ceilings to manage risk.

Housing and Real Estate Exposure Limits

• Aggregate exposure to housing, real estate, and commercial real estate sectors is capped at 10% of total assets.
• An additional 5% exposure is permitted for priority sector housing loans.

Individual housing loan limits

• ₹60 lakh for Tier-1 UCBs.
• ₹1.4 crore for other UCBs.

Caps on Real Estate Exposure

• UCBs’ exposure to residential mortgages (non-priority sector loans) must not exceed 25% of total loans and advances.
• Exposure to real estate (excluding individual housing loans) is limited to 5% of total loans and advances.

Strategic Intent of RBI’s Policy

The revised guidelines aim to,

• Enhance financial resilience of UCBs.
• Reduce credit concentration risk.
• Ensure a balanced loan portfolio.
• Prevent overexposure to volatile real estate markets.
• By prescribing clear exposure ceilings and glide paths, RBI ensures UCBs adopt a structured and risk-conscious lending approach.