The Reserve Bank of India (RBI) has increased the small value loan ceiling per borrower to Rs 3 crore per borrower for Urban Co-operative Banks (UCB), according to a circular issued on February 24.
“On a review, it has been decided to revise the definition of small value loans as loans of value not more than Rs 25 lakh or 0.4 percent of their Tier I capital, whichever is higher, subject to a ceiling of Rs 3 crore per borrower. All other conditions, as well as the timelines and the intermediate targets, remain unchanged,” the RBI said.
Boards of UCBs, however, shall periodically review the portfolio behavior and quality under different loan-size categories and where necessary, may consider fixing lower ceilings, the circular emphasised.
UCBs are required to follow the prescribed glide path to have at least 50 percent of their aggregate loans and advances comprising of small value loans – i.e., loans of value not more than Rs 25 lakh or 0.2 percent of their Tier I capital, whichever is higher, subject to a maximum of Rs 1 crore per borrower – by March 31, 2026, the RBI said.
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Review and rationalization of prudential norms – UCBs
The Reserve Bank has, from time to time, prescribed various prudential norms for Urban Co-operative Banks (UCBs) to enhance their financial soundness and resilience. Some of these prudential norms have been issued to reduce credit concentration risk, reduce exposures to sensitive sectors, and enhancing provisioning requirements for relatively riskier exposures.
“These norms, inter alia, include the stipulations relating to small value loans, exposure ceilings on housing and real estate loans, and provisioning requirements for investment in Security Receipts (SRs),” the circular said.
Real estate exposure norms
In terms of extant instructions, aggregate exposure of a UCB to housing, real estate, and commercial real estate loans is capped at 10 percent of its total assets, the RBI said adding that the ceiling of 10 percent can be exceeded by an additional 5 percent of total assets for grant of housing loans to individuals as per the eligibility limits for priority sector classification as amended from time to time.
Further,
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