The Reserve Bank of India proposes new draft rules easing housing loan limits for rural co-operative banks while tightening fraud prevention measures, potentially transforming rural lending landscape.
The Reserve Bank of India has moved to tighten oversight of rural co-operative banks while giving them more room to serve housing borrowers and local businesses, in a set of draft changes that could reshape lending in the countryside. The proposals are aimed at reducing concentration risk, widening lending flexibility and improving fraud controls, according to the draft directions published by the central bank.
Under the proposed credit-risk rules, a rural co-operative bank would not be allowed to lend more than 20% of its Tier 1 capital to a single borrower, or more than 25% to a group. The RBI says the aim is to stop exposure building up around a small number of large borrowers while preserving room for banks to support agriculture, micro, small and medium-sized enterprises and other local activity. The draft also seeks to remove sector-specific lending caps for most industries, although restrictions would remain in place for real estate.
The changes could be especially significant for housing finance. According to the draft, rural co-operative banks with deposits of more than ₹10,000 crore would be able to sanction home loans of up to ₹3 crore, with boards gaining authority to decide tenure and moratorium terms. That would mark a notable expansion in lending freedom for institutions that are often the main banking link in remote and semi-urban areas, where demand for house construction and renovation has been rising.
Alongside the lending changes, the RBI is also moving to harden fraud defences across the co-operative banking system. Separate draft directions would limit customer liability for unauthorised electronic transactions, require SMS alerts for payments above ₹500 and oblige banks to maintain round-the-clock fraud reporting channels. They would also shift the burden of proof to the bank in disputed unauthorised transactions and introduce compensation for small fraud losses of up to ₹50,000. Another set of amendments, effective from April 1, 2026, would strengthen governance around related-party lending, with stricter board oversight, whistleblower protections, audit requirements and penalties for non-compliance.
Public comments on the lending proposals are open until August 28, and the draft rules are not yet final. But if adopted, they would give larger rural co-operative banks more scope to offer bigger home loans and more tailored repayment terms while subjecting them to tougher risk controls and fraud safeguards.
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