What changed
Previously, UCBs could not grant unsecured loans exceeding 10% of total assets. Now, with prior RBI approval, UCBs meeting specific conditions can extend unsecured loans up to 25% of total assets.
What it means for you
This relaxation supports priority sector lending and financial inclusion by allowing UCBs to offer more small-value unsecured loans. Banks must ensure strict compliance with the conditions, including full priority sector coverage and low NPAs, to avail this higher limit.
What you must do
- Assess your bank's eligibility against the four conditions: priority sector portfolio, loan size ≤₹20,000, CRAR ≥9%, and gross NPAs <10%.
- Apply to the Regional Office of UBD for prior approval if you wish to exceed the 10% unsecured loan limit.
- Maintain accurate records of financial parameters as of March 31 of the previous year for inspection purposes.
Who it affects
Primary (Urban) Co-operative Banks, UCB borrowers seeking small unsecured loans, RBI's Urban Banks Department
What is the new maximum limit for unsecured loans for UCBs?
Eligible UCBs can now grant unsecured loans up to 25% of total assets, up from the earlier 10% limit, subject to RBI approval.
What conditions must a UCB meet to avail this higher limit?
The bank must have its entire loan portfolio under priority sector, all loans as small value (up to ₹20,000 per account), CRAR of at least 9%, and gross NPAs below 10% of gross advances.
How should a UCB apply for this relaxation?
UCBs must approach the Regional Office of the Urban Banks Department with a request for permission, providing evidence of meeting the specified conditions.