RBI Revises Lending, Exposure, and Governance Norms for UCBs

Why in the News?

  • RBI superseded the board of New India Co-operative Bank due to governance issues and financial irregularities.
  • Revised norms expand small-value loan definition, increase real estate exposure limits, and update provisioning for security receipts (SRs).
  • New regulations aim to enhance operational flexibility while maintaining regulatory oversight.

RBI Revises Lending, Exposure, and Governance Norms for UCBs

RBI Revises Co-operative Bank Norms:

  • RBI recently superseded the board of New India Co-operative Bank due to governance issues, financial irregularities, and misappropriation of funds.
  • The central bank imposed restrictions, initially barring withdrawals, later allowing withdrawals up to ₹25,000 from February 27.
  • More than 50% of depositors are now estimated to be able to withdraw their entire balance.

Revised Lending & Exposure Norms

  • RBI revised urban co-operative bank (UCB) norms to provide operational flexibility while maintaining regulatory objectives.
  • The definition of small-value loans has been updated to loans below ₹25 lakh or 4% of Tier-I capital, with a cap of ₹1 crore.
  • UCBs must ensure small-value loans comprise 50% of total advances by March 31, 2026.
  • Aggregate exposure to housing and commercial real estate remains capped at 10% of total assets, with an additional 5% allowed for priority sector housing loans.
  • Loan limits for housing loans:
    • Tier-I UCBs: ₹60 lakh
    • Tier-II UCBs: ₹1.4 crore
    • Tier-III UCBs: ₹2 crore
    • Tier-IV UCBs: ₹3 crore

Provisioning & Regulatory Measures

  • RBI mandates provisions for valuation differences in security receipts (SRs) held against assets transferred to Asset Reconstruction Companies (ARCs).
  • ARCs typically purchase bad loans with a 20% cash component, while banks retain the remaining amount as SRs.
  • The revised norms come into effect immediately to enhance UCBs’ financial stability and governance.