What changed
RBI clarified that housing finance for eligible borrowers under Master Circular UBD.PCB.MC.No.2/09.22.010/2009-10 qualifies as housing loans. The 15% cap on real estate exposure now explicitly includes housing, real estate, and CRE loans, and is based on audited deposits as of March 31 of the previous financial year. Working capital loans to small contractors for construction materials are exempt from this limit.
What it means for you
UCBs must ensure their combined fund and non-fund based exposure to real estate, housing, and CRE does not exceed 15% of total deposits. Classification of loans as real estate or CRE depends on loan purpose and repayment source, not just collateral. This provides clarity for compliance and risk management, especially for banks with significant real estate portfolios.
What you must do
- Recalculate total real estate, housing, and CRE exposure against audited deposits as of March 31 of the previous financial year, ensuring it stays within 15%.
- Review loan classification: classify loans by purpose for real estate and by repayment source for CRE, per Annex 2 of circular UBD.PCB.Cir.No.59/2009-10.
- Exempt working capital loans to small contractors for construction materials from the 15% cap, but document compliance.
- Place these clarifications before the board for information and update internal policies accordingly.
Who it affects
All Primary (Urban) Cooperative Banks (UCBs), Risk management and compliance teams at UCBs, Board of directors of UCBs
What is the 15% cap based on?
The cap is based on total deposits from the audited balance sheet as of March 31 of the previous financial year, including both fund-based and non-fund-based facilities.
How do we classify a loan as CRE vs real estate?
Loan purpose determines real estate classification; repayment source determines CRE classification. If repayment depends primarily on cash flows from the property (e.g., rent), it is CRE. Refer to Annex 2 of circular UBD.PCB.Cir.No.59/2009-10.
Are working capital loans to contractors exempt?
Yes, working capital loans against hypothecation of construction materials to small contractors undertaking construction without advance payments are exempt from the 15% limit.