What changed
The original circular required UCBs to have at least 50% of aggregate loans as small value loans (up to ₹25 lakh or 0.2% of Tier I capital, max ₹1 crore) by March 31, 2024. RBI has now extended the glide path by two years: UCBs must achieve 40% by March 31, 2025, and 50% by March 31, 2026.
What it means for you
UCBs get breathing room to restructure their loan portfolios without immediate penalty, but must show progress by hitting the 40% interim target. Lenders need to accelerate small-ticket lending or reduce larger exposures to meet the final 50% threshold by 2026.
What you must do
- Review current portfolio mix to calculate the gap to 40% small value loan share by March 2025.
- Develop a phased plan to increase small loans or reduce large exposures to hit the 50% target by March 2026.
- Monitor Tier I capital levels as the loan value cap is linked to 0.2% of capital, subject to ₹1 crore maximum.
- Ensure board-level oversight of compliance with the revised glide path and report progress to RBI as required.
Who it affects
All Primary (Urban) Co-operative Banks (UCBs), UCB loan officers and credit committees, UCB board of directors and compliance teams
What is considered a 'small value loan' under this circular?
A small value loan is defined as a loan of value not more than ₹25 lakh or 0.2% of the UCB's Tier I capital, whichever is higher, subject to a maximum of ₹1 crore per borrower.
What happens if a UCB fails to meet the 40% target by March 31, 2025?
The circular does not specify penalties for missing the interim target, but UCBs should aim to comply as the final 50% target by March 31, 2026 remains mandatory. RBI may take supervisory action for non-compliance.
Does this extension change any other prudential limits from the March 2020 circular?
No, all other provisions regarding prudential limits from the March 13, 2020 circular remain unchanged.