Master Directions

RBI/DOR/2025-26/281
DOR.CRE.REC.200/07-03-005/2025-26

November 28, 2025

Reserve Bank of India (Urban Co-operative Banks - Concentration Risk Management) Directions, 2025

Introduction

The concentration of a bank’s exposures to a single counterparty or a group of connected counterparties poses significant risks. The Reserve Bank of India (RBI), recognizing the imperative of robust risk management, therefore introduced prudential exposure limits for Urban Co-operative Banks (UCBs) in May 1994 with reference to their demand and time liabilities (DTL). These norms were revised in January 1996 and exposure norms were redefined with reference to a bank’s Capital Funds. These limits restrict banks’ exposures to individual borrower and group of interconnected borrowers, laying the foundation for mitigating concentration risk on assets side of their balance sheets. Further, prudential norms for limiting exposures to unsecured advances and inter-bank exposures were also issued. With a view to ensuring a granular portfolio and restricting advances to very large borrowers, UCBs are also subject to prudential norms on small value loans. These prudential norms collectively address the concentration risks faced by UCBs and they are being consolidated in these Directions.

In exercise of the powers conferred by Sections 21 and 35A read with Section 56 of the Banking Regulation Act, 1949, and all other provisions / laws enabling the Reserve Bank of India (‘RBI’) in this regard, RBI being satisfied that it is necessary and expedient in the public interest so to do, hereby, issues the Directions hereinafter specified.

Chapter I - Preliminary

A. Short Title and Commencement

1. These Directions shall be called the Reserve Bank of India (Urban Co-operative Banks: Concentration Risk Management) Directions, 2025.

2. These Directions shall come into effect immediately upon issuance.

B. Applicability

3. These Directions shall be applicable to Urban Co-operative Banks (hereinafter collectively referred to as 'UCBs' and individually as a 'UCB').

In this context, urban co-operative banks shall mean Primary Co-operative Banks as defined under section 5(ccv) read with Section 56 of Banking Regulation Act, 1949.

C. Definitions

4. In these Directions, unless the context states otherwise, the terms herein shall bear the meaning assigned to them in the ensuing paragraphs.

(1) “Credit Exposure” shall include funded and non-funded credit limits and underwriting and similar commitments; facilities extended by way of equipment leasing and hire purchase financing; and ad hoc limits sanctioned to the borrowers to meet the contingencies.

(i) The sanctioned limit or outstanding whichever is higher shall be reckoned for arriving at credit exposure limit. Further, in case of fully drawn term loans, where there is no scope of re-drawal of any portion of the sanctioned limit, a UCB may reckon the outstanding for arriving at credit exposure limit.

(ii) In respect of non-funded credit limit, 100 per cent of such limit or outstanding, whichever is higher, need be taken into account for the purpose.

(iii) The level of an individual UCB's share in Consortium / Multiple Banking / Syndication shall be governed by single borrower / group exposure.

(iv) Credit exposure shall not include loans and advances granted against the security of a UCB’s own term deposits.

(2) “Investment Exposure (Non-SLR securities)” shall be the same as prescribed by provisions contained at Reserve Bank of India (Urban Co-operative Banks – Classification, Valuation and Operation of Investment Portfolio) Directions, 2025.

(3) “Exposure” shall include both credit exposure (Loans and Advances) and investment exposure (Non-SLR securities) as indicated in paragraphs 4(1) and 4(2).

(4) “Group”:

(i) The decision in regard to definition of a group is left to the perception of a UCB, which is generally aware of the basic constitution of its clientele. The group to which a particular borrowing unit belongs may, therefore, be decided by the UCB on the basis of relevant information available with it, the guiding principle in this regard being commonality of management and effective control.

(ii) The different firms with one or more common partners engaged in the same line of business, viz., manufacturing, processing, trading activity, etc. shall be deemed to be connected group and units coming under common ownership shall be deemed to be a single party.

(5) “Tier-I Capital” as on March 31 of the preceding financial year shall be reckoned for the purpose of fixing the exposure limits. Tier-I capital for the purpose shall be the same as that prescribed in Reserve Bank of India (Urban Co-operative Banks – Prudential Norms on Capital Adequacy) Directions, 2025.

(6) “Unsecured advances” shall include clean overdrafts, loans against personal security, clean bills or Multani hundies purchased or discounted, cheques purchased and drawals allowed against cheques sent for collection but shall exclude:

(i) advances backed by guarantee of the central or state governments, public sector financial institutions, banks and Deposit Insurance & Credit Guarantee Corporation;

(ii) advances against supply bills drawn on the central or state governments or state owned undertakings which are accompanied by duly authorised inspection notes or receipted challans;

(iii) advances against trust receipts;

(iv) advances against inland Document against Acceptance (D/A) bills drawn under letters of credit;

(v) advances against inland D/A bills (even where such bills are not drawn under letters of credit) having a usance of not exceeding 90 days;

(vi) advances granted to salaried employees against personal security,

Provided that the Co-operative Societies Act of the State concerned contains an obligatory provision for deduction of periodical loan instalments by the employer out of the employee's salary / wages to meet the UCB's claims, and

Provided further that the UCB has taken advantages of this provision in respect of each of such advances (please refer to paragraphs 23 and 24);

(vii) advances against supply bills drawn on private parties of repute and receipted challans of public limited companies and concerns of repute and not outstanding for more than 90 days;

(viii) advances against book debts which are not outstanding for more than 90 days;

(ix) cheques issued by governments, public corporation and local self-governing institutions;

(x) advances in the form of packing credit for exports;

(xi) demand drafts purchased;

(xii) the secured portion of partly secured advances; and

(xiii) advances against legal assignment of contract moneys due, or to become due.

Note: All bills of exchange not accompanied by the official receipts of the Indian Railways or Indian Airlines Corporation or Road and Water Transport Operators shall be deemed to be clean bills.

(7) “Nominal member” shall include any person who is co-parcener or who desires to stand surety for a borrowing member of the bank or who desires to borrow occasionally for a temporary period (i) for purchase of consumer durables, (ii) against certain tangible securities such as gold and silver ornaments, fixed deposit receipts, life insurance policies, government and other securities. Such person may be enrolled as a nominal member upon his application in a prescribed form on payment of nominal fees as non-refundable entrance fee provided he resides or is gainfully engaged in any occupation within the area of operation of the bank. A co-operative society registered under any law shall not be eligible and as such shall not be admitted to nominal membership. The nominal member shall not be entitled to receive a share certificate, audited accounts, annual report and dividend. The nominal member shall not be entitled to attend, participate and vote in the General Meeting and/or Special General Meeting of the Bank.

Chapter II - Exposure Norms

A. Role of the Board

5. A UCB shall put in place a comprehensive Board approved policy, which shall, inter-alia, include the following provisions, with the details outlined in the ensuing paragraphs.

(1) Fixing of exposure ceiling in relation to the UCB’s Tier-I capital.

(2) Comprehensive prudential norms for ceiling on the total amount of real estate loans.

(3) The Periodic review of the small value loan portfolio behaviour and quality under different loan-size categories, shall be placed before the Board.

B. Exposure Ceiling to Individual / Group Borrowers

6. The UCB shall fix, with the approval of its Board of Directors, exposure ceiling in relation to its Tier-I capital. The exposure for the purpose shall comprise both credit exposure (loans and advances) and investment exposure (Non-SLR securities) as detailed at paragraphs 4(1) and 4(2) respectively, so that -

(1) the exposure to an individual borrower does not exceed 15 per cent of Tier-I capital; and

(2) the exposure to a group of connected borrowers / parties does not exceed 25 per cent of Tier-I capital.

Note: A UCB’s contribution towards eligible funds with NABARD, NHB, SIDBI, MUDRA Ltd., or any other entity specified by RBI, on account of shortfall in priority sector lending (PSL) targets shall not be included while computing the aggregate exposure of a UCB to individual / group borrowers for deciding the above prudential exposure limits. PSL-related instructions are contained in Master Direction FIDD.CO.PSD.BC.13/04.09.001/2024-25 dated March 24, 2025 on ‘Priority Sector Lending (PSL) – Targets and Classification’, as amended from to time.

7. The exposure limits prescribed in paragraph 6 apply to all types of fresh exposures taken by a UCB after March 13, 2020, and the UCBs were required to bring down their exposures within the aforesaid revised limits by March 31, 2023, if such exposures were in breach of the prescribed limits. However, where such breaching existing exposure comprised only of term loans and non-fund-based facilities, these facilities were allowed to continue as per their respective repayment schedule / till maturity while prohibiting any fresh exposure on such borrowers.

C. Computation of exposure ceiling for individual / group borrowers

8. The exercise of computing the exposure ceilings shall be conducted every year after the finalisation and audit of balance sheet of the UCB and the exposure ceilings may be advised to the loan sanctioning authorities and the investment department in the UCB. In view of the linking of shareholding to lending, accretion to or reduction in the share capital after the balance sheet date shall be taken into account for determining exposure ceiling at half-yearly intervals, with the approval of its Board. Accordingly, a UCB may, if it so desires, fix a fresh exposure limit taking into account the amount of share capital available as on September 30. However, accretion to capital funds other than to share capital, such as half-yearly profit etc., shall not be eligible for reckoning the exposure ceiling. The UCB shall not take exposures in excess of ceiling prescribed in anticipation of infusion of capital on a future date.

D. Small value loans

9. The UCB shall have at least 50 per cent of its aggregate loans and advances comprising of Small Value Loans, i.e., loans of value not more than ₹25 lakh or 0.4 per cent of its Tier-I capital, whichever is higher, subject to a ceiling of ₹3 crore per borrower. The Board of the UCB, however, shall periodically review the portfolio behaviour and quality under different loan-size categories and where necessary, may consider fixing lower ceilings.. Notwithstanding the above, the UCB shall adhere to the exposure limits stipulated at paragraph 6 above. ‘Loans’ for the purpose shall include all types of funded and non-funded exposures in the nature of credit. The UCB which does not, at present, comply with the prescribed threshold shall be in conformity with the above requirements as per following glide path:

E. Real Estate Exposure Norms

10. The UCB shall frame, with the approval of its Board of Directors, comprehensive prudential norms relating to the ceiling on the total amount of real estate loans, keeping in view the RBI guidelines to ensure that the UCB credit is used for construction activity and not for activity connected with speculation in real estate subject to the instructions in following paragraphs.

E.1 Aggregate Housing / Real estate Limits

11. Aggregate exposure of a UCB to residential mortgages (housing loans to individuals), other than those eligible to be classified as priority sector, shall not exceed 25 per cent of its total loans and advances as on March 31 of previous financial year.

12. Aggregate exposure of a UCB to real estate sector, excluding housing loans to individuals, shall not exceed five per cent of its total loans and advances as on March 31 of previous financial year.

13. Working capital loans given by a UCB against hypothecation of construction materials provided to the contractors who undertake comparatively small construction on their own without receiving advance payments is exempted from the prescribed limit.

14. A UCB is not permitted to exceed the limit prescribed for grant of housing, real estate, commercial real estate loans to the extent of funds obtained from higher financing agencies and refinance from National Housing Bank.

E.2 Treatment of Exposures beyond the Prudential Limits

15. With a view to smoothening the transition of UCBs, which were in the breach of the new exposure limit to ‘real estate sector, excluding housing loans to individuals’ at ‘5% of total loans and advances’ while being in compliance with the older aggregate exposure limit to housing, real estate and commercial real estate loans at ‘10 per cent of total assets’ as on February 24, 2025, the following dispensations shall be available:

(i) Term loans and non-fund-based facilities to real estate sector (excluding housing loans to individuals), sanctioned on or before February 24, 2025, may be disbursed/run-off till maturity as per the originally sanctioned terms and conditions / repayment schedule.

(ii) Limits on cash credit or revolving facilities of similar nature sanctioned to real estate sector on or before February 24, 2025, may be allowed to be utilized. However, such limits may be rationalized with a view to meeting the aggregate exposure limit in a time bound manner in consultation with the borrower.

(iii) Such UCBs shall not take any fresh exposures to real estate sector (excluding housing loans to individuals) till they have adequate headroom available according to the prudential limits prescribed in Section E.1.

F. Inter-bank Exposure Limit

F.1 Prudential Inter-bank (Gross) Exposure Limit

16. The UCB shall be guided by provisions contained in Reserve Bank of India (Urban Co-operative Banks – Classification, Valuation and Operation of Investment Portfolio) Directions, 2025, as amended from time to time.

F.2 Prudential Inter-bank Counterparty Limit

17. A UCB shall be guided by provisions contained in Reserve Bank of India (Urban Co-operative Banks – Classification, Valuation and Operation of Investment Portfolio) Directions, 2025, as amended from time to time.

G. Ceiling on Unsecured Advances (with Surety or without Surety)

G.1 Limits on unsecured advances

18. The limits for individual borrower and group borrower on unsecured advances (with or without surety) shall be governed by Reserve Bank of India (Urban Co-operative Banks – Credit Facilities) Directions, 2025.

G.2 Aggregate Ceiling on Unsecured Advance

19. The total unsecured loans and advances (with surety or without surety or for cheque purchase) granted by a UCB to its members should not exceed 10 per cent of its total assets as per the audited balance-sheet as on March 31 of the preceding financial year.

20. A UCB shall not finance a borrower, who is already enjoying credit facilities with another bank, without obtaining a 'NOC' from such financing bank and where the aggregate of the credit facilities enjoyed by the borrower exceeds the ceiling stipulated at para 18 above, the prior approval of RBI shall be obtained.

21. In order to provide further impetus to UCBs engaged in financial inclusion, it has been decided that for a UCB whose priority sector loan portfolio is not less than 90 per cent of the gross loans may, with the prior approval of the RBI, grant unsecured advances to the extent of 35 per cent of its total assets as per the audited balance sheet at the end of the preceding financial year, subject to the following conditions:

(1) The entire unsecured loan portfolio in excess of the normally permitted 10 per cent, shall comprise of priority sector loans and the exposure to any individual borrower shall not exceed ₹40,000.

(2) CRAR of not less than 9 per cent as per the latest Inspection Report and audited financial statements.

(3) Gross NPAs of not more than 7 per cent as per the latest Inspection Report and audited financial statements.

22. In respect of the UCB whose priority sector lending portfolio is less than 90 per cent, unsecured loans up to ₹10,000 sanctioned by the UCB shall be exempt from the aggregate ceiling on unsecured exposure of 10 per cent of total assets as per audited balance sheet as on March 31 of the previous financial year, subject to following conditions:

(1) The individual amount sanctioned should not exceed ₹10,000.

(2) The loan should be for productive purpose and the UCB should ensure end use of funds lent.

(3) The UCB should have CRAR of at least nine per cent.

(4) The Gross NPAs of the UCB should not be more than seven per cent.

(5) The unsecured loans so extended by the UCB shall not exceed 15 per cent of its total assets. Financial parameters detailed above shall be as per the latest Inspection Report and audited financial statements.

23. In view of the fact that salary earners’ UCB grants advances to salaried employees of a particular institution / group of institutions to which its membership is restricted and deductions are made from the salaries through their employers, the salary earners’ UCB may allow such advances in excess of the limits, ranging from ₹0.25 lakh to ₹5 lakh, subject to the following conditions:

(1) The Co-operative Societies Act of the State concerned contains an obligatory provision for deduction of periodical loan instalments by the employer out of employee's salaries / wages to meet bank's claims.

(2) The UCB has taken advantage of this provision in respect of each of such advance.

(3) A general limit for such advances is fixed by the UCB in terms of certain multiples of the pay packet taking into account the monthly income of the employees.

24. The advances granted by a UCB, other than salary earners’ societies, to all salaried borrowers wherein repayment is sought to be ensured through deduction from borrower's salaries as per the provisions of the State Co-operative Societies Act, should be reckoned as secured only for the purpose of computation of total unsecured advances to the members as a whole. While granting advances to the individual salaried borrowers, the UCB should ensure that these advances do not exceed the maximum limit on unsecured advances as indicated in Reserve Bank of India (Urban Co-operative Banks – Credit Facilities) Directions, 2025.

H. Ceiling on Advances to Nominal Members

25. UCBs may sanction loans to nominal members for short / temporary period and for purchase of consumer durables, subject to the following ceiling:

26. The total number of nominal members should not, at any point of time, exceed 20% of the regular members. However, non-borrower sureties and coparceners who are admitted as nominal members should be excluded for the purpose of computation of the above ceiling.

Chapter III - Repeal and other provisions

A. Repeal and saving

27. With the issue of these Directions, the existing Directions, instructions, and guidelines relating to Concentration Risk Management as applicable to Urban Co-operative Banks stand repealed, as communicated vide circular DOR.RRC.REC.302/33-01-010/2025-26 dated November 28, 2025. The Directions, instructions, and guidelines repealed prior to the issuance of these Directions shall continue to remain repealed.

28. Notwithstanding such repeal, any action taken or purported to have been taken, or initiated under the repealed Directions, instructions, or guidelines shall continue to be governed by the provisions thereof. All approvals or acknowledgments granted under these repealed lists shall be deemed as governed by these Directions. Further, the repeal of these directions, instructions, or guidelines shall not in any way prejudicially affect:

(1) any right, obligation or liability acquired, accrued, or incurred thereunder;

(2) any, penalty, forfeiture, or punishment incurred in respect of any contravention committed thereunder;

(3) any investigation, legal proceeding, or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture, or punishment as aforesaid; and any such investigation, legal proceedings or remedy may be instituted, continued, or enforced and any such penalty, forfeiture or punishment may be imposed as if those directions, instructions, or guidelines had not been repealed.

B. Application of other laws not barred

29. The provisions of these Directions shall be in addition to, and not in derogation of the provisions of any other laws, rules, regulations or directions, for the time being in force.

C. Interpretations

30. For the purpose of giving effect to the provisions of these Directions or in order to remove any difficulties in the application or interpretation of the provisions of these Directions, the RBI may, if it considers necessary, issue necessary clarifications in respect of any matter covered herein and the interpretation of any provision of these Directions given by the RBI shall be final and binding.

(Vaibhav Chaturvedi)
Chief General Manager