What changed
Housing loan tenor for Tier 1 and Tier 2 UCBs is now capped at 20 years including moratorium, with moratorium allowed only for under-construction properties (max 24 months). Tier 3 and 4 UCBs can set their own tenor via board policy. Loans against deposits of other banks are prohibited, and a board-approved policy for credit against deposits is mandated. Unsecured advance limits per borrower are set at ₹5 lakh (Tier 1), ₹7.5 lakh (Tier 2), and ₹10 lakh (Tier 3 & 4).
What it means for you
UCBs must tighten housing loan underwriting, especially for long-tenor loans, and ensure moratorium policies align with construction timelines. The ban on lending against other banks' FDs closes a regulatory arbitrage and forces UCBs to rely on their own deposit base. The new unsecured advance limits standardize risk concentration across tiers, requiring UCBs to review borrower exposure limits and board policies.
What you must do
- Update housing loan policy to cap tenor at 20 years for Tier 1 & 2 UCBs and restrict moratorium to under-construction homes only.
- Revise board-approved policy for credit against deposits to explicitly prohibit loans against other banks' FDs.
- Align unsecured advance limits per borrower with new tier-wise caps (₹5L/₹7.5L/₹10L) and ensure aggregate ceiling compliance.
- Prepare for implementation by Oct 1, 2026, or earlier if adopting the entire amendment package.
Who it affects
Urban Co-operative Banks (all tiers), Housing loan borrowers of UCBs, UCB credit and risk management teams, UCB board of directors
Can Tier 3 and Tier 4 UCBs offer housing loans beyond 20 years?
Yes, they are permitted to determine tenor as per their board-approved policies, without the 20-year cap.
Does the moratorium restriction apply to existing housing loans?
No, the amendment applies to new loans sanctioned after the effective date (Oct 1, 2026 or earlier adoption). Existing loans are not affected.
What happens if a UCB currently lends against other banks' FDs?
Such lending must stop by the effective date. UCBs need to revise their board policy and ensure no new sanctions against other banks' deposits.