RBI: The Reserve Bank of India (RBI) has suggested significant modifications to the concentration risk and lending regulations for rural cooperative banks (RCBs). These changes involve raising housing loan limits, providing larger lenders with greater flexibility in structuring home loans, and establishing new precautionary exposure limits for borrowers and unsecured advances.
On Thursday (August 6), the central bank published two draft regulations for public feedback: the new ‘Reserve Bank of India (Rural Cooperative Banks – Concentration Risk Management) Directions, 2026’ and revisions to the ‘Rural Cooperative Banks – Credit Facilitation Directions, 2025’.
These proposals come in the wake of announcements made by the RBI in its ‘Statement on Developmental and Regulatory Policies’ on August 5. According to the draft framework, the RBI has suggested a precautionary exposure limit of 20% of Tier-1 capital for a single counterparty (a borrower or entity) and 25% for a group of counterparties. A higher limit of up to 30% of Tier-1 capital has been proposed for a single Primary Agricultural Credit Society (PACS), in accordance with the relevant state cooperative laws.
The draft also recommends eliminating the current sector-specific exposure limits, with the exception of the real estate sector. Instead, RCBs will need to establish their own board-approved internal limits for various sectors and sub-sectors based on their business models and risk evaluations.
For the real estate sector, the RBI has proposed to keep precautionary limits (caps) in place. The total exposure to this sector will be capped at 15% of total loans and advances, while exposure to real estate, excluding individual housing loans, will be restricted to 5%. Additionally, the regulator has suggested capping total unsecured loans (unsecured advances) at 15% of total loans and advances, along with setting limits on unsecured loans to individual borrowers based on the bank’s size.
Key proposals aimed at customers include raising housing loan limits. According to the draft, rural cooperative banks with deposits exceeding Rs 10,000 crore can approve housing loans. loans up to Rs 3 crore per borrower. For banks with deposits between Rs 1,000 crore and Rs 10,000 crore, this limit will be Rs 2 crore. For banks with deposits between Rs 100 crore and Rs 1,000 crore, it will be Rs 1.4 crore and for smaller banks, it will be Rs 60 lakh. RBI has also proposed greater operational flexibility for larger RCBs (Rural Cooperative Banks).
Banks with deposits of more than Rs 1,000 crore will be permitted to determine the housing loan tenure and moratorium period through board-approved policies. For other RCBs, the maximum housing loan tenure will be 20 years (including the moratorium), with a moratorium limit of 24 months for under-construction properties.
The draft also proposes allowing loans to “nominal members,” provided the bank’s bylaws and applicable cooperative laws permit it. Such loans can be granted against deposits, gold or silver jewelry, life insurance policies, and government securities, within limits approved by the board. The RBI has sought comments from regulated entities and other stakeholders on the draft rules by August 28, 2026. If finalised, the revised instructions will come into effect from April 1, 2027.