RBI Revises Rules for Rural Co-operative Banks; Home Loan Limit Raised to ₹3 Crore

The Reserve Bank of India (RBI) has proposed changes to regulations concerning loans and risk management for Rural Co-operative Banks (RCBs).

The new draft proposes increasing home loan limits for customers of large RCBs and granting banks greater flexibility in determining loan tenures. Additionally, new limits have been proposed regarding the maximum loan amount a bank can extend to a single borrower or a group of borrowers.

On Thursday, August 6, the RBI released two draft circulars outlining these changes. Regulated entities and other stakeholders may submit their feedback by August 28, 2026. Once finalized, these regulations will come into effect on April 1, 2027.

What will change under the new rules?

The RBI has proposed new limits on credit extended to a single counterparty and to a group of counterparties.

Exposure to a single counterparty will be capped at 20% of Tier-1 capital.
The limit for a group of counterparties will be 25%.
For a Primary Agricultural Credit Society (PACS), the limit may extend up to 30%; however, the co-operative laws of the respective state will apply in this instance.
The RBI has also proposed removing most pre-existing sector-specific exposure limits, retaining only the limit for the real estate sector. For other sectors, banks will be permitted to set board-approved internal limits based on their business models and risk profiles.

What will be the limits for real estate and unsecured loans?

It is proposed that the total exposure of RCBs to the real estate sector be capped at 15% of their total loans and advances. Meanwhile, the limit for real estate exposure—excluding individual housing loans—will be 5%.

New limits have also been proposed for unsecured advances (loans granted without collateral). The total amount of such advances shall not exceed 15% of the bank's total loans and advances. Limits will also be set for unsecured loans granted to individual customers, based on the size of the respective banks.

How much home loan can be obtained from which RCB?

The new proposal could directly impact customers seeking home loans. The RBI has proposed fixing the maximum housing loan limit based on the bank's deposit base:

What additional relief will large RCBs receive?

There is a proposal to allow RCBs with deposits exceeding ₹1,000 crore to determine the home loan tenure and moratorium period based on their board-approved policies.

For other RCBs, the maximum tenure for housing loans will be 20 years, inclusive of the moratorium period. In the case of under-construction properties, the maximum moratorium period will be 24 months.

Additionally, a provision could be made to grant loans to nominal members, provided the bank's bylaws and applicable co-operative laws permit it. However, such loans can only be extended against deposits, gold and silver ornaments, life insurance policies, or government securities, and the limits for these will be determined by the board.

The RBI has introduced these proposals following announcements made in its 'Statement on Developmental and Regulatory Policies' issued on August 5.