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Informist, Wednesday, Apr. 29, 2026

 

NEW DELHI – The Reserve Bank of India has fixed the aggregate ceiling for unsecured advances by urban co-operative banks at 20% of total advances from the current 10% of total assets, the central bank said Wednesday. Following the draft norms released on Feb. 10, RBI had received representation to increase the limit to either 15% of total assets or 25% of total advances, but the central bank rejected the feedback.

 

"The change in aggregate limit for unsecured advances from 10% of total assets to 20% of total loans and advances will result in a decline in aggregate limit for the majority of UCBs (urban co-operative banks) and particularly for Tier 1 and UCBs (urban co-operative banks)," the feedback had said. Rejecting this, the central bank said "the current utilisation of aggregate limit by majority of the UCBs (urban co-operative banks) is well below the regulatory threshold."

 

The RBI had sought comments and feedback on the draft amendment directions by Mar. 4. The final norms will come into force from Oct. 1, or on an earlier date when adopted in their entirety by an urban co-operative bank.

 

The RBI also rationalised the definition of 'unsecured advances' as advances, or a portion thereof, not covered by the realisable value of a security, whether primary or collateral, to which the urban co-operative banks have a valid recourse. It added that advances granted to salaried employees against their personal guarantees may be treated as secured advances if the urban co-operative bank has a legally enforceable agreement with the borrower and the employer of the borrower, which ensures deduction of periodic loan instalments by the employer out of the employee's salary to meet the bank's claims.

 

The RBI has enhanced the individual loan limits for unsecured advances by urban co-operative banks, although it rejected the feedback for higher limits. The limit for individual unsecured advances by tier-1 urban co-operative banks will be INR 500,000, while that of tier-2 lenders will be INR 750,000. The ceiling for tier-3 and -4 urban co-operative banks is fixed at INR 1 million, it said. 

 

"Stakeholders requested to increase the individual unsecured loan limits to 10 lakh (INR 1 million) for Tier 2 and 15 lakh (INR 1.5 million) or as per Board-approved policy for Tier 3/4 UCBs," the central bank said. It rejected the feedback and said that the latest increase in individual loan limits on unsecured advances has already suitably factored in the rise in the general level of prices, customer needs and tiered categorisation of urban co-operative banks. 

 

The central bank also allowed urban co-operative banks to sanction loans to nominal members if they have an enabling provision in their by-laws to extend credit facilities to such members. Urban co-operative banks can grant loans for the purchase of consumer durables, subject to a monetary ceiling of INR 250,000 per borrower and loans against fixed deposit receipts, gold and silver ornaments, life insurance policies, and government securities, within the monetary ceiling.

 

Additionally, the tenor and moratorium requirements for housing loans are proposed to be deregulated for tier-3 and tier-4 urban co-operative banks. Under this, tier-3 and tier-4 lenders will be allowed to determine the tenor of housing loans, including the moratorium period, in accordance with their board-approved policies. Further, for tier-1 and tier-2 lenders, the tenor of housing loans should not exceed 20 years, including the moratorium period, it said. 

 

For tier-1 and tier-2 lenders, the RBI had earlier said that the moratorium period for housing loans should be a maximum of 18 months from the date of the first disbursement of the loan or the date of obtaining the completion or occupancy certificate, whichever is later. However, following feedback, the central bank fixed it at 24 months from the date of first disbursement of the loan.  End

 

Reported by Priyasmita Dutta

Edited by Vandana Hingorani

 

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