What changed
Small value loans definition revised: ceiling raised to ₹3 crore per borrower (from ₹1 crore) and threshold increased to 0.4% of Tier I capital (from 0.2%). Real estate exposure norms overhauled: aggregate housing loan limit (non-priority sector) set at 25% of total loans and advances, real estate (ex-housing) at 5% of total loans and advances, with individual housing loan caps raised for Tier 2-4 UCBs (Tier 1 unchanged at ₹60 lakh). Provisioning glide path for security receipts extended for additional two years till FY2027-28.
What it means for you
UCBs get more headroom to lend larger amounts under small value loans, supporting MSME and retail portfolios. Revised real estate limits allow higher housing loan disbursements, especially for Tier 3 and 4 banks, boosting growth in affordable housing. Extended SR provisioning timeline eases pressure on UCBs holding stressed asset resolutions, improving balance sheet flexibility.
What you must do
- Update internal policies to reflect new small value loan ceiling of ₹3 crore and 0.4% Tier I capital threshold.
- Revise real estate exposure monitoring frameworks to comply with aggregate limits of 25% (housing) and 5% (other real estate) of total loans.
- Adjust individual housing loan sanction limits per UCB tier as per revised caps (₹60 lakh to ₹3 crore).
- Review and extend provisioning schedules for security receipts under the revised glide path timeline.
- Conduct board-level reviews of loan portfolio behavior across size categories to set appropriate internal caps.
Who it affects
All Primary (Urban) Co-operative Banks (UCBs), Borrowers seeking small value loans up to ₹3 crore, Real estate and housing loan customers of UCBs, Asset Reconstruction Companies (ARCs) dealing with UCBs
What is the new definition of small value loans for UCBs?
Small value loans are now defined as loans up to ₹25 lakh or 0.4% of Tier I capital (whichever is higher), with a maximum ceiling of ₹3 crore per borrower. The 50% portfolio target and timelines remain unchanged.
How have real estate exposure limits changed for UCBs?
Aggregate housing loans (non-priority sector) are capped at 25% of total loans, and other real estate exposure at 5%. Individual housing loan limits are tiered: ₹60 lakh for Tier 1, ₹1.40 crore for Tier 2, ₹2 crore for Tier 3, and ₹3 crore for Tier 4 UCBs.
What is the extension for provisioning on security receipts?
RBI has extended the five-year glide path for provisioning on specified security receipts (outstanding as of September 24, 2021) beyond FY2025-26, providing UCBs more time to meet requirements.