The Reserve Bank of India has proposed increased housing loan limits for rural co-operative banks, aiming to improve access to credit in smaller towns, alongside stricter risk management measures.
The Reserve Bank of India has proposed sharply higher housing loan limits for rural co-operative banks, a move that could widen credit access in smaller towns and villages while tightening the rules around concentration risk.
In draft regulations issued on August 6, the central bank set out a new framework for Rural Co-operative Banks, or RCBs, alongside revisions to the credit facilities framework they already follow. The most visible change is in housing finance. Under the proposal, the largest RCBs, those with deposits of more than ₹10,000 crore, would be allowed to lend up to ₹3 crore to a single housing borrower. Banks with deposits between ₹1,000 crore and ₹10,000 crore would have a ceiling of ₹2 crore, those with deposits between ₹100 crore and ₹1,000 crore would be allowed up to ₹1.4 crore, and the smallest banks would be capped at ₹60 lakh.
The RBI is also giving larger co-operative lenders more flexibility over loan tenures and moratorium periods, while smaller banks would remain subject to a maximum tenure of 20 years and a moratorium cap of two years for homes still under construction. The proposed changes would replace far tighter limits the central bank put in place in June 2022, when RCB housing loans were raised only to ₹50 lakh for smaller institutions and ₹75 lakh for larger ones, reflecting rising property prices.
Beyond housing, the draft aims to curb excessive exposure to any one borrower or sector. A single borrower would be limited to 20% of a bank’s Tier I capital, while a group of connected borrowers would be capped at 25%. The ceiling rises to 30% for a single Primary Agricultural Credit Society. According to the RBI, most sector-wise lending limits would be removed, except for real estate, where a 15% overall exposure cap would remain. Unsecured lending would also be restricted to 15% of total advances.
The proposals come as the RBI continues to focus on risk controls in the co-operative banking system. The central bank had already signalled a review of the framework at its August 3-5 monetary policy meeting, when it kept the repo rate unchanged at 5.25%. Comments on the draft are open until August 28, and if the rules are adopted as proposed, they would take effect on April 1, 2027.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
