What changed
RBI allowed UCBs to lend to SHGs and JLGs via circular dated June 2, 2011. Previously, UCBs were not permitted to extend such loans. The circular provides detailed guidelines on lending policy, membership, loan amounts, and priority sector treatment.
What it means for you
UCBs can now directly finance SHGs and JLGs as part of normal business, subject to Board-approved policies. Loans to SHGs are exempt from unsecured loan limits, while JLG loans without tangible security count as unsecured. This opens a new channel for financial inclusion and priority sector lending.
What you must do
- Frame a Board-approved lending policy for SHGs/JLGs covering loan limits, interest rates, and security norms.
- Ensure bye-laws permit such lending and obtain RCS/CRCS approval if required.
- Adhere to share-linking norms for SHGs and treat JLG loans without tangible security as unsecured.
- Classify loans up to Rs. 50,000 as micro credit and those for agriculture as priority sector advances.
Who it affects
Primary Urban Co-operative Banks (UCBs), Self Help Groups (SHGs), Joint Liability Groups (JLGs), RCS/CRCS offices
What is the maximum loan amount for an SHG?
The loan to an SHG should not exceed four times its savings, but can go up to ten times for well-managed groups based on objective parameters like track record and recovery rate.
Are JLG loans treated as unsecured?
Yes, loans to JLGs not backed by tangible security are treated as unsecured and subject to the bank's extant limits on unsecured advances.
Do these loans qualify as priority sector advances?
Loans for agricultural and allied activities qualify as priority sector. Other loans up to Rs. 50,000 are considered micro credit and also treated as priority sector advances.