The Reserve Bank of India seems to have done urban cooperative banks (UCBs) a good turn by raising the ceiling of small value loans.
This may ensure that these banks are able to meet the prudential norm, whereby their loan book should comprise at least 75 per cent priority sector loans by the March-end 2026 deadline.
As part of its review and rationalisation of prudential norms for UCBs, the central bank also rejigged real estate exposure norms, allowing higher exposure as a percentage of total loans and upping the individual housing loan limit.
Further, UCBs have been given two more years for providing for the valuation differential on the Security Receipts (SRs) held against the assets transferred by them to Asset Reconstruction Companies (ARCs).
Small value loans
The central bank has revised the definition of small value loans for UCBs as loans of value not more than ₹25 lakh or 0.4 per cent (0.2 per cent earlier) of their Tier I capital, whichever is higher, subject to a ceiling of ₹3 crore (₹1 crore earlier) per borrower.
All other conditions, as well as the timelines and the intermediate targets (whereby UCBs have to meet the PSL target of 65 per cent and 75 per cent of their loan book by end-March 2025, and 2026, respectively) remain unchanged.
Boards of UCBs, however, have to periodically review the portfolio behaviour and quality under different loan-size categories and where necessary, may consider fixing lower ceilings.
Priority sector loans (PSL) include loans given by UCBs to micro, small and medium enterprises, farm credit, ancillary activities, agriculture infrastructure, housing, education, weaker sections, among others.
Real estate norms
In a bid to give more flexibility to these banks, RBI said the aggregate exposure of a UCB to residential mortgages (housing loans to individuals), other than those eligible to be classified as priority sector, will be up to 25 per cent of its total loans and advances.
Further, aggregate exposure of a UCB to real estate sector, excluding housing loans to individuals, cannot exceed five per cent of its total loans and advances.
In terms of extant instructions, aggregate exposure of a UCB to housing, real estate and commercial real estate loans is capped at 10 per cent of its total assets. The ceiling of 10 per cent can be exceeded by an additional 5 per cent of total assets for the purpose of grant of housing loans to individuals as per the eligibility limits for priority sector classification.
Individual housing loan limits
The ceiling for individual housing loan for Tier-3 UCBs (with deposits more than ₹1,000 crore and up to ₹10,000 crore) and Tier-4 UCBs (with deposits more than ₹10,000 crore) has been upped to ₹2 crore and ₹3 crore per individual borrower, respectively, up from ₹1.40 crore.
The ceiling for individual housing loan for Tier-1 UCBs (with deposits up to ₹100 crore) and Tier-2 UCBs (with deposits more than ₹100 crore and up to ₹1,000 crore) continues at ₹60 lakh and ₹1.40 crore per individual borrower, respectively.
UCBs have been given two additional years till FY28 to provide for the valuation differential on the SRs held against the assets transferred by them to ARCs.