Reserve Bank of India (Urban Co-operative Banks – Credit Risk Management) Directions, 2025 (Updated as on July 01, 2026)

1. Credit risk spreads

Credit risk left unmanaged can spread into other kinds of risk.

1. Credit risk rules for UCBs

This document sets the credit risk management rules for urban co-operative banks.

2. Who is covered

These Directions apply to every urban co-operative bank.

3. What an entity means

An entity here means a person other than an individual or a Hindu Undivided Family.

1. Board policy on credit risk

The Board must approve a full policy on managing credit risk.

2. Policy covers three areas

The policy must cover related party lending, property valuation and loan renewal.

3. Allow for calamities

Credit assessment must allow for the effect of a calamity on the borrower.

1. Section 20 now applies

A 2020 change to the Banking Regulation Act brought Section 20 to these banks.

2. Trustee director trusts

An advance to a public trust whose trustee is a director of the bank is caught by this.

3. Staff rate is the floor

Such a loan cannot carry a rate lower than the rate charged to employees.

4. Director facility fully secured

A non-fund facility for a director must be fully backed by cash of equal value.

5. Derivatives are outside

Cash collateral is not required where the exposure comes from a derivative deal.

6. Wrong write-off is void

A remission made against the law has no effect at all.

1. Board owns related party rules

The Board carries overall responsibility for the related party lending policy.

2. Extra safeguards required

The policy must set extra safeguards against the risks of related party lending.

3. Staff and their relatives

The policy must cover lending to specified employees and their relatives.

4. Cap on related party loans

The policy must set a total limit for loans to related parties.

5. Sub-limits within the cap

Inside that total there must be sub-limits for one party and for a group.

6. Inside RBI limits

Those limits must sit inside the exposure limits RBI already sets.

7. Thresholds may differ

The materiality threshold may differ for different kinds of related party loan.

8. Board sanctions these loans

A loan above that threshold must be sanctioned by the Board itself.

9. Step out of the room

Anyone connected to the borrower must take no part in the decision.

10. Deviations to audit

Any departure from the policy must be reported to the audit committee with reasons.

11. Breach draws action

Breaking or dodging these rules brings supervisory and enforcement action.

1. Valuer must be independent

A valuer must be professionally qualified and free of any interest in the property.

2. Two reports above ₹50 crore

A property valued at ₹50 crore or more needs two independent valuation reports.

BankPulse example. A property valued at ₹65 crore needs two independent valuation reports. That is because it is ₹50 crore or above. A property valued at ₹30 crore is below ₹50 crore, so this rule does not apply.

3. Keep a list of valuers

The lender must keep a register of approved valuers.

4. Minimum qualification for valuers

The bank may set a minimum qualification for a valuer to be listed.

5. Different assets, different skills

Different qualifications may be set for land, machinery or farm land.

6. Qualifications from the law

The qualifications set must follow those in the Wealth Tax Act.

7. Follow accounting standards

The bank must also follow the accounting standard issued by the chartered accountants body.

1. Every charge must be filed

Every transaction creating a security interest must be filed with the registry.

1. Free below ₹10 crore

Below ₹10 crore of total banking system exposure, current accounts carry no restriction.

2. Check every half year

Accounts must be checked at least once every six months.

3. Three months to fix

Conversion or closure must be finished within three months of finding the account ineligible.

4. Flag it in the system

Such accounts must be flagged in the core banking system.

5. Watch borrower and account

Where a borrower has several accounts, both the borrower and each account must be watched.

6. Only the stated business

An account may be used only for the business it was opened for.

7. No pass-through use

These accounts must never be used to pass money for third parties.

1. Old actions preserved

Anything already done under the old rules stays governed by those old rules.

2. Approvals carried over

Approvals given under the cancelled rules are now treated as given under these rules.

3. Other laws still apply

These Directions add to other laws. They do not replace any of them.

BankPulse example. A bank follows these Directions and thinks the matter is closed. It is not. Any other laws, rules, regulations or directions in force still apply on top. Where another one asks for more, the bank does the more.