The Reserve Bank of India has issued the Urban Co-operative Banks Concentration Risk Management Directions, 2025 to strengthen prudential norms and curb exposure concentration risks in Urban Co-operative Banks (UCBs). The Directions cap exposure to a single borrower at 15% and to connected groups at 25% of Tier-I capital, mandate that at least 50% of advances comprise small-value loans, and impose tighter limits on real estate, housing, and unsecured advances. The February 10, 2026 amendments redefine “unsecured advances” based on the realisable value of security, introduce clarifications for clean overdrafts, receivables, and D/A bills, and permit salary-linked loans to be treated as secured subject to statutory deductions. The ceiling on unsecured advances is revised to 20% of total loans and advances, with limited additional allowance for priority sector loans up to ₹50,000 per borrower. Certain earlier provisions are deleted, and nominal membership is restricted to a maximum three-year borrowing period, enhancing clarity and risk discipline.
Introduction:
The Reserve Bank of India (RBI) has issued the Urban Co-operative Banks Concentration Risk Management Directions, 2025 to consolidate and strengthen prudential norms governing exposure concentration risks faced by Urban Co-operative Banks (UCBs). These Directions prescribe Board approved policies to cap exposures to individual borrowers at 15% and to connected groups at 25% of Tier-I capital, covering both credit and non-SLR investment exposures. They mandate portfolio granularity by requiring at least 50% of total advances to comprise small value loans, introduce tighter limits on real estate and housing exposures, and set clear ceilings on unsecured advances with calibrated relaxations for financial inclusion-oriented banks. Detailed computation norms, transition dispensations for pre-existing exposures, inter bank exposure guidance, and restrictions on lending to nominal members are also laid down. Overall, the Directions aim to reduce concentration risk, improve resilience of UCB balance sheets, and promote diversified, prudent lending aligned with capital strength.
Amendment in 10th Feb 26:
Chapter I – Preliminary’ of the Directions, the following modifications shall be effected in Paragraph 4:
Old:
(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.
New
‘Unsecured advances’ shall mean advances, or a portion thereof, not covered by the realisable value of a security (primary as well as collateral) to which the UCB has a valid recourse.
Explanation 1: The realisable value of security shall be estimated on a realistic basis.
Explanation 2: Clean overdrafts; loans against personal guarantee; clean bills purchased or discounted; cheques purchased; and drawals allowed against cheques sent for collection shall be treated as unsecured advances.
Explanation 3: Advances granted to salaried employees against personal guarantee may be treated as secured advances if 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 the UCB has implemented this provision in respect of each of such advances.
Explanation 4: Advances against inland D/A bills, including those which are not drawn under letters of credit, having a usance of not exceeding 90 days shall not be treated as unsecured advances.
Explanation 5: Advances against receivables, shall not be treated as unsecured advances as long as such receivables are not overdue for more than 30 days.
2. “Nominal member”
Old
(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.
New
(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 subject to a maximum period of three years (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.
Para 19:
Old
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.
New
19. The aggregate unsecured loans and advances granted by a UCB to its members shall not exceed 20 per cent of its total loans and advances as per the audited balance-sheet as on March 31 of the preceding financial year.
Provided that additional unsecured advances above this prudential ceiling shall be permitted only in respect of priority sector eligible loans, subject to a monetary ceiling of ₹50,000 per borrower.
Following three are deleted (20,21 & 22)
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.
Paragraph 23,
Old
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.
New:
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 specified in Paragraph 203 of the Reserve Bank of India (Urban Co-operative Banks – Credit Facilities) Directions, 2025 (as amended from time to time) 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.
Introduction:
The Reserve Bank of India (RBI) has issued the Urban Co-operative Banks Concentration Risk Management Directions, 2025 to consolidate and strengthen prudential norms governing exposure concentration risks faced by Urban Co-operative Banks (UCBs). These Directions prescribe Board approved policies to cap exposures to individual borrowers at 15% and to connected groups at 25% of Tier-I capital, covering both credit and non-SLR investment exposures. They mandate portfolio granularity by requiring at least 50% of total advances to comprise small value loans, introduce tighter limits on real estate and housing exposures, and set clear ceilings on unsecured advances with calibrated relaxations for financial inclusion-oriented banks. Detailed computation norms, transition dispensations for pre-existing exposures, inter bank exposure guidance, and restrictions on lending to nominal members are also laid down. Overall, the Directions aim to reduce concentration risk, improve resilience of UCB balance sheets, and promote diversified, prudent lending aligned with capital strength.
Amendment in 10th Feb 26:
Chapter I – Preliminary’ of the Directions, the following modifications shall be effected in Paragraph 4:
Old:
(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.
New
‘Unsecured advances’ shall mean advances, or a portion thereof, not covered by the realisable value of a security (primary as well as collateral) to which the UCB has a valid recourse.
Explanation 1: The realisable value of security shall be estimated on a realistic basis.
Explanation 2: Clean overdrafts; loans against personal guarantee; clean bills purchased or discounted; cheques purchased; and drawals allowed against cheques sent for collection shall be treated as unsecured advances.
Explanation 3: Advances granted to salaried employees against personal guarantee may be treated as secured advances if 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 the UCB has implemented this provision in respect of each of such advances.
Explanation 4: Advances against inland D/A bills, including those which are not drawn under letters of credit, having a usance of not exceeding 90 days shall not be treated as unsecured advances.
Explanation 5: Advances against receivables, shall not be treated as unsecured advances as long as such receivables are not overdue for more than 30 days.
2. “Nominal member”
Old
(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.
New
(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 subject to a maximum period of three years (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.
Para 19:
Old
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.
New
19. The aggregate unsecured loans and advances granted by a UCB to its members shall not exceed 20 per cent of its total loans and advances as per the audited balance-sheet as on March 31 of the preceding financial year.
Provided that additional unsecured advances above this prudential ceiling shall be permitted only in respect of priority sector eligible loans, subject to a monetary ceiling of ₹50,000 per borrower.
Following three are deleted (20,21 & 22)
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.
Paragraph 23,
Old
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.
New:
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 specified in Paragraph 203 of the Reserve Bank of India (Urban Co-operative Banks – Credit Facilities) Directions, 2025 (as amended from time to time) 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.
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