The Reserve Bank of India (RBI) has increased the small value loan ceiling for Urban Co-operative Banks (UCBs) to Rs 3 crore per borrower, enhancing credit access for urban borrowers. The revised guidelines were outlined in an RBI circular issued on February 24, 2025.
As per the circular, small value loans will now include loans up to Rs 25 lakh or 0.4 percent of the bank’s Tier I capital, whichever is higher — subject to a maximum limit of Rs 3 crore per borrower. The RBI clarified that all existing conditions, timelines and intermediate targets related to these loans will remain unchanged.
The central bank also reiterated its prudential caps on UCBs’ exposure to the housing, real estate and commercial real estate sectors, which is restricted to 10 percent of total assets, with an additional 5 percent allowance specifically for priority sector housing loans.
For individual housing loans, the lending limits remain at Rs 60 lakh for tier-1 UCBs and Rs 1.4 crore for other UCBs, reflecting the RBI’s efforts to balance credit expansion with financial stability.
The circular further emphasises that UCBs’ aggregate exposure to residential mortgages that do not qualify as priority sector loans must not exceed 25 percent of their total loans and advances. Additionally, UCBs’ exposure to the broader real estate sector, excluding individual housing loans, is capped at 5 percent of total loans and advances.
The revised framework aims to provide greater flexibility for UCBs to meet changing credit demands, while ensuring prudent risk management across sectors.
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