The Reserve Bank of India has issued amendment directions for urban co-operative banks' concentration risk management framework, tightening the treatment of unsecured lending and updating the rules for lending to nominal members. The central prudential change sets a ceiling under which a UCB's aggregate unsecured loans and advances must not exceed 20 per cent of its total loans and advances based on the audited balance sheet as of March 31 of the preceding financial year. UCBs that meet the Eligibility Criteria for Business Authorization may exclude unsecured advances of up to INR 50,000 per borrower from that ceiling where those loans qualify as priority sector lending. The amendments also replace the definition of unsecured advances so that any loan or portion of a loan not covered by the realisable value of security to which the UCB has valid recourse is treated as unsecured. Clean overdrafts, personal guarantee loans, clean bills purchased or discounted, cheques purchased, and drawals against cheques sent for collection are specifically classified as unsecured, while salary-backed loans with enforceable employer deduction arrangements and advances against receivables with an original tenure of up to 180 days may be treated as secured. For nominal members, UCBs may lend only where their by-laws permit it and only for specified products, namely consumer durable loans up to INR 2.5 lakh per borrower and loans against deposits, gold and silver ornaments, life insurance policies, and government securities within board-approved limits. The amendments take effect from October 1, 2026, or earlier if a UCB adopts them in full together with the linked amendments to the Urban Co-operative Banks Credit Facilities Directions, 2026. Existing loans that do not conform on the effective date may run off until maturity, but cannot be reviewed, renewed or enhanced unless brought into compliance. Consequential amendments to the financial statements presentation and disclosure directions have been issued separately.
Reserve Bank of India 2026-04-29
Reserve Bank of India revises urban co-operative bank concentration risk rules with 20 per cent unsecured lending cap and new nominal member loan conditions
The Reserve Bank of India has amended the concentration risk management framework for urban co-operative banks, tightening the definition and prudential treatment of unsecured lending and revising rules for lending to nominal members. Aggregate unsecured loans and advances are capped at 20 per cent of total loans and advances, with limited exclusions for small priority sector loans. Lending to nominal members is restricted to by-law permitted products, including capped consumer durable loans and loans against specified collateral.