What changed
RBI noticed some cooperative banks were lending to commercial real estate, which is outside their core mandate. It has now explicitly prohibited new financing to this sector and ordered that existing loans not be renewed.
What it means for you
Cooperative banks must refocus on agriculture and rural development, avoiding sensitive sectors like commercial real estate. Existing CRE loans need full provisioning and security, and cannot be rolled over, potentially impacting asset quality and recovery efforts.
What you must do
- Immediately cease all new financing to commercial real estate sector.
- Review existing CRE exposures to ensure they are well secured and adequately provisioned as per prudential norms.
- Do not renew or roll over any existing CRE credit facilities.
- Acknowledge receipt of this circular to your respective RBI Regional Office.
Who it affects
State Cooperative Banks (StCBs), Central Cooperative Banks (CCBs), Short Term Cooperative Credit Structure (STCCS)
Can we continue servicing existing commercial real estate loans?
Yes, but only if they are well secured and adequately provisioned. You must not renew or extend these facilities.
Does this apply to all cooperative banks?
Yes, this circular is addressed to all State and Central Cooperative Banks under the STCCS.
What is the rationale behind this ban?
RBI states that the primary role of rural cooperative banks is to lend for agriculture and rural development, and CRE exposure is not in the interest of the cooperative credit structure.