The Reserve Bank of India (RBI) has doubled the limit on housing loans issued by various urban cooperative banks (UCBs). The last time these limits were revised was in 2011.
In its June monetary policy, the RBI said, “Taking into account the increase in housing prices since the limits were last revised, and also considering the customer needs, it has been decided to increase the existing limits on individual housing loans by cooperative banks.”
Here’s a detail of the new limits and the steps RBI took to safeguard the quality of UCBs’ assets.
Tier-I UCBs can now issue individual housing loans of up to Rs 60 lakh, and tier-II UCBs can issue loans of up to Rs 1.4 crore.
Tier-I UCBs are those UCBs that have deposits below Rs 100 crore in a single district, or those UCBs whose deposits are below Rs 100 crore and they were originally in a single district, but later, owing to reorganisation, became multi-district UCBs.
Apart from this, if these banks have deposits below Rs 100 crore and they operate in more than one district, they will also be classified as Tier-I, provided the branches are in contiguous districts, and the advances of branches in any one district represents 95 per cent of the total deposit and advances of the UCB.
The RBI has realised the need for UCBs to have a good diversified loan book, and has accordingly revised the lending norms for them. According to the master circular issued on June 23, the RBI has reduced the exposure limits of UCBs to a group of connected borrowers by 15 per cent from the previous limit of 40 per cent to 25 per cent.
The loan exposure limit for a single borrower for UCBs remain unchanged at 15 per cent, though. The exposure limits of UCBs to the housing, real estate, and commercial real estate sector has been limited at a fixed 10 per cent of the total assets of the respective UCB. However, the above ceiling of 10 per cent can be further extended by 5 per cent if the UCB is granting loan to individuals as per the RBI’s priority sector classification guidelines.
Apart from these loan exposure limits, the RBI has also barred UCBs to charge any foreclosure or prepayment penalty in floating interest rate home loans with effect from June 26, 2022. Besides, UCBs will only issue housing loans with a maximum repayable tenure of 20 years, including a moratorium or repayment holiday (if applicable).