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Reserve Bank of India (Urban Co-operative Banks – Credit Facilities) Directions, 2025
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DRAFT FOR COMMENTS RBI/ 2025-26/…. XX, 2025 Reserve Bank of India (Urban Co-operative Banks – Credit Facilities) Directions, 2025 Reserve Bank of India (Reserve Bank) is statutorily mandated to operate the credit system of the country to its advantage. In pursuit of this mandate, the Reserve Bank encourages innovation in the financial systems, credit products and delivery mechanisms while ensuring orderly growth, financial stability and the protection of depositors’ and borrowers’ interest. With the progressive deregulation of bank credit, prudential norms primarily serve as regulatory safeguards. These norms, issued from time to time, provide guidance to Urban Cooperative Banks (UCBs) on the design and delivery of credit-related products and services. These Directions consolidate the instructions issued to Urban Co-operative Banks on credit facilities Accordingly, in exercise of powers conferred by Section 21, 35A and 56 of the Banking Regulation Act, 1949, the Reserve Bank being satisfied that it is necessary and expedient in the public interest to do so, hereby issues these Directions hereinafter specified. A. Short Title and Commencement 1. These Directions shall be called the Reserve Bank of India (Urban Co-operative Banks – Credit Facilities) Directions, 2025. 2. These Directions shall come into effect immediately upon its issuance, unless indicated otherwise in specific cases. 3. These Directions shall be applicable to Urban Co-operative Banks (hereinafter collectively referred to as ‘UCBs/banks’ and individually as a ‘UCB/bank’). 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. 4. (1) For the purpose of these Directions, following definitions shall apply: i) Actual DCCO: Refers to the date on which the project is put to commercial use and completion certificate / provisional completion certificate / occupancy certificate (in case of CRE and CRE-RH projects) or its equivalent is issued to the concessionaire / project developer / promoter. ii) Annual Percentage Rate (APR): APR as defined under Reserve Bank of India (Urban Co-operative Banks – Responsible Business Conduct) Directions, 2025. iii) Appointed Date: Refers to the date, as defined in the concession agreement entered into between the concessionaire and the concession granting authority, on which the concession agreement comes into force in accordance with the terms outlined therein (applicable only in the case of infrastructure projects under Public Private Partnership (PPP) model). iv) Credit Event: In the context of project finance exposures, shall be deemed to have been triggered on the occurrence of any of the following:
v) Default Loss Guarantee (DLG): A contractual arrangement, called by whatever name, between the bank and another entity, under which the latter guarantees to compensate the bank, for the loss due to default up to a certain percentage of the loan portfolio of the bank, specified upfront. Any other implicit guarantee of similar nature, linked to the performance of the loan portfolio of the bank and specified upfront, shall also be covered under the definition of DLG. vi) Digital Lending: A remote and automated lending process, largely by use of seamless digital technologies for customer acquisition, credit assessment, loan approval, disbursement, recovery, and associated customer service. vii) Digital Lending Apps / Platforms (DLAs): Mobile and / or web-based applications, on a standalone basis or as a part of suite of functions of an application with user interface that facilitate digital lending services. DLAs shall include applications of the bank as well as those operated by Lending Service Provider (LSP) engaged by bank for extending any credit facilitation services in conformity with extant outsourcing guidelines issued by the Reserve Bank. viii) Date of Financial Closure: Refers to the date on which the capital structure of the project, including equity, debt, grant (only in the case of infrastructure PPP projects) (if any), accounting for minimum 90% of total project cost, becomes legally binding on all stakeholders. Explanation: In the case of CRE-RH projects, lenders may reckon contingent sales receivables (if any) as part of promoters’ contribution to the project. ix) Default: Refers to non-payment of debt (as defined in Insolvency and Bankruptcy Code (IBC), 2016) when whole or any part or instalment of the debt has become due and payable and is not paid by the debtor. x) Extended DCCO: If the original DCCO is revised, then the revised DCCO shall be termed as the Extended DCCO. xi) Interest During Construction (IDC): Refers to the interest accrued on debt provided by a lender and capitalised during the construction phase of the project. xii) Lending Service Provider (LSP): An agent of the bank (including another bank) who carries out one or more of bank’s digital lending functions, or part thereof, in customer acquisition, services incidental to underwriting and pricing, servicing, monitoring, recovery of specific loan or loan portfolio on behalf of the bank in conformity with extant outsourcing guidelines issued by the Reserve Bank. Provided that, while entities offering only Payment Aggregator (PA) services in terms of the extant instructions issued by the Reserve Bank shall remain out of the ambit of these Directions, any PA also performing the role of an LSP shall comply with the Chapter III of these Directions. xiii) Original Date of Commencement of Commercial Operations (Original DCCO): Refers to the date, as envisaged at the time of financial closure, by which the project is expected to be put to commercial use and completion certificate / provisional completion certificate, or its equivalent, is expected to be issued to the concessionaire / project developer / promoter. Provided that, in the case of CRE and CRE-RH projects, original DCCO shall be the date on which Occupancy Certificate, or its equivalent, is expected to be obtained from the competent authority. xiv) Project: Refers to ventures undertaken through capital expenditure (involving current and future outlay of funds) for creation / expansion / upgradation of tangible assets and / or facilities in the expectation of stream of cash flow benefits extending far into the future. Projects usually have the characteristics of a long gestation period, irreversibility and substantial capital outlays. xv) Project Finance: Refers to the method of funding a project in which the revenues to be generated by the funded project serve as the primary security for the loan, and also as a source of repayment. Project finance may take the form of financing the construction of a new capital installation (greenfield) or financing an improvement / enhancement in the existing installation (brownfield). For the purpose of these Directions, an exposure shall qualify as a project finance exposure only if the following conditions are satisfied:
xvi) Restructuring shall have the same meaning as given in Reserve Bank of India (Urban Co-operative Banks – Resolution of Stressed Assets) Directions, 2025. xvii) Resolution Plan (RP) shall means the same as defined under Reserve Bank of India (Urban Co-operative Banks – Resolution of Stressed Assets) Directions, 2025. xviii) Bullet Repayment Loans: Refers to loans where both principal and interest are due for payment at the maturity of the loan. xix) Collateral Security or Collateral: Refers to an existing asset of the borrower pledged to the lender for availing and securing a credit facility extended by the lender to the borrower. xx) Consumption Loan: In the context of loans against gold and silver collateral, refers to any permissible loan that does not fit the definition of ‘income generating loan’ as defined subsequently. xxi) Eligible Collateral: Refers to the specific collateral security or securities against which a specific credit facility is extended. xxii) Loan to Value (LTV) ratio: LTV Ratio on a day means the ratio of the outstanding loan amount to the value of the pledged eligible collateral or primary security, as the case may be, on that day. In case of bullet repayment loans, however, the LTV calculation shall take into account the total amount repayable at maturity. xxiii) Income Generating Loan: Refers to loans extended for the purpose of productive economic activities, such as farm credit, loans for business or commercial purposes, loans for creation or acquisition of productive assets etc. xxiv) Jewellery: Refers to items that are designed to be worn as personal adornments. xxv) Ornaments: Refers to items meant for use as adornment of any object, decorative items, or utensils, excluding those items that fall under the definition of jewellery as defined under 4(vii) above. xxvi) Primary Gold and Primary Silver: Refers to gold and silver in any form other than in the form of a jewellery, ornaments and coins. xxvii) Top-up Loan: Refers to an additional loan sanctioned over and above an outstanding loan, during the tenor of the original loan, based on the strength of the collateral already pledged for the existing loan. xxviii) 'Pre-shipment / Packing Credit: Refers to any loan or advance granted or any other credit provided by the bank to an exporter for financing the purchase, processing, manufacturing or packing of goods prior to shipment / working capital expenses towards rendering of services on the basis of letter of credit opened in his favour or in favour of some other person, by an overseas buyer or a confirmed and irrevocable order for the export of goods / services from India or any other evidence of an order for export from India having been placed on the exporter or some other person, unless lodgement of export orders or letter of credit with the bank has been waived. xxix) Post-shipment Credit: Refers to any loan or advance granted or any other credit provided by the bank to an exporter of goods / services from India from the date of extending credit after shipment of goods / rendering of services to the date of realisation of export proceeds, and includes any loan or advance granted to an exporter, in consideration of, or on the security of any duty drawback allowed by the Government from time to time. xxx) Beneficiary: Refers to the party in whose favour the NFB facility is issued by a RE. xxxi) Co-acceptance of bills: Refers to an undertaking to make payment to the drawer of the bill (seller / exporter) on due date if the buyer / importer fails to make the payment on that date. xxxii) Guarantee: Refers to a contract to perform the promise, or discharge the liability, of a third person in the contingent case of his non-performance or default, in terms of The Indian Contract Act, 1872. xxxiii) Guarantor: Refers to the party which issues the guarantee. xxxiv) Obligor: Refers to a party against whose obligations, financial or otherwise, a NFB facility has been issued. In the case of guarantees, the obligor may also be termed as ‘principal debtor’, as defined under the Indian Contract Act, 1872. xxxv) Secured portion of an NFB facility: Refers to the portion of the facility covered by realisable value of tangible security/ collateral estimated on a realistic basis. 2) All other expressions unless defined herein shall have the same meanings as have been assigned to them under the Banking Regulation Act, 1949 or the Reserve Bank of India Act, 1934, or any statutory modification or re-enactment thereto or in other relevant regulations issued by the Reserve Bank or as used in commercial parlance, as the case may be. Chapter II – Board Approved Policies 5. UCBs shall put in place Board approved policies covering, inter alia, the areas specified below. The specific aspects to be addressed in these policies are detailed in the relevant paragraphs of this Directions.
A. General Requirements for UCB-LSP Arrangements 6. Due diligence requirements with respect to LSPs
7. UCB-LSP arrangements involving multiple lenders In cases where a LSP has agreements with multiple REs for digital lending, UCB shall ensure the following:
B. Conduct and Customer Protection Requirements 8. Assessing the borrower’s creditworthiness
9. Disclosures to borrowers 1) UCB shall provide a Key Fact Statement (KFS), as per instructions contained in Reserve Bank of India (Urban Cooperative Banks – Responsible Business Conduct) Directions, 2025. 2) As regards penal charges, UCB shall be guided by Reserve Bank of India (Urban Cooperative Banks – Responsible Business Conduct) Directions, 2025. 3) UCB shall ensure that digitally signed documents (on the letter head of the UCB) viz., KFS, summary of loan product, sanction letter, terms and conditions, account statements, privacy policies of the UCB / LSP with respect to storage and usage of borrowers’ data, etc. shall automatically flow to the borrower on the registered and verified email/ SMS upon execution of the loan contract/ transactions. Note: Digitally signed documents shall be in compliance with the provisions of the Information Technology Act, 2000, as amended from time to time. 4) UCB shall maintain a website of their own in public domain, which shall be kept up to date, inter-alia, with the following details at a prominent single place on the website for ease of accessibility:
UCBs shall ensure that DLAs / LSPs have links to the above website of the UCB. 5) In case of a loan default, when a recovery agent is assigned for recovery or there is a change in the recovery agent already assigned, the particulars of such recovery agent authorised to approach the borrower for recovery shall be communicated to the borrower through email/ SMS before the recovery agent contacts the borrower for recovery. 10. Loan disbursal, servicing and repayment 1) Disbursement of loan by the UCB shall always be made into the bank account of the borrower except for disbursals covered exclusively under statutory or regulatory mandate (of RBI or of any other regulator), flow of money between lenders for co-lending transactions and disbursals for specific end use, provided the loan is disbursed directly into the bank account of the end-beneficiary. UCB shall ensure that in no case, disbursal is made to a third-party account, including the accounts of LSP, except as provided for in this Chapter. Provided that advances against salary, where the loan is disbursed directly to the bank account of the borrower, but the repayment is from the corporate employer, can be allowed subject to the condition that the loan is repaid by the corporate employer by deducting the amount from the borrower’s salary. However, it must be ensured that LSPs do not have any control over the flow of funds directly or indirectly in such transactions and that repayment is directly from the bank account of the employer to the UCB. Note: Co-lending arrangements shall be governed by the Reserve Bank of India (Urban Cooperative Banks – Transfer and Distribution of Credit Risk) Directions, 2025, as amended from time to time, subject to the condition that no third party other than the lenders in a co-lending transaction shall have direct or indirect control over the flow of funds at any point of time. 2) UCBs shall ensure that all loan servicing, repayment, etc. is executed by the borrower directly in the UCB’s account without any pass-through account/ pool account of any third party, including the accounts of LSP. 3) The flow of funds between the bank accounts of the borrower and the UCB shall not be controlled either directly or indirectly by a third-party, including the LSP. 4) UCBs shall ensure that any fees, charges, reimbursements, etc. payable to LSP are paid directly by the UCB and are not charged to or collected from the borrowers separately by LSP. 5) In case of delinquent loans, UCBs may deploy physical interface to recover loans in cash, wherever necessary. In order to afford operational flexibility to UCBs, such transactions are exempted from the requirement of direct repayment of loan in the UCB’s bank account. However, any recovery by cash shall be duly reflected in full in the borrower’s account on the same day and UCB shall ensure that any fees, charges, etc., payable to LSPs for such recovery are paid directly by the UCB and are not charged by LSP to the borrower either directly or indirectly from the recovery proceeds. 11. Cooling-off period 1) The borrower shall be given an explicit option to exit a digital loan by paying the principal and the proportionate APR without any penalty during an initial “cooling-off period”. The cooling off period shall be determined by the Board of the UCB as laid down in their credit policy, subject to the period so determined not being less than one day. For borrower continuing with the loan even after cooling-off period, pre-payment shall continue to be allowed as per Reserve Bank of India (Urban Cooperative Banks – Responsible Business Conduct) Directions, 2025. 2) UCB may retain a reasonable one-time processing fee, if the customer exits the loan during the cooling-off period. This, if applicable, shall be disclosed to the customer upfront in KFS. 12. Grievance redressal
C. Technology and Data Requirement 13. Collection, usage and sharing of data with third parties
14. Storage of data
15. Comprehensive privacy policy
16. Technology standards
D. Reporting of Credit Information and DLAs 17. Reporting to Credit Information Companies (CICs)
18. Reporting of DLAs to RBI 1) UCB shall report all DLAs deployed/ joined by them, whether their own or those of the LSPs, either exclusively or as a platform participant, on the Centralised Information Management System (CIMS) portal of RBI in the requisite format as given in the Annex-I to these Directions. 2) UCB shall update the aforesaid list as and when additional DLA (s) are deployed or the engagement with the existing DLA (s) ceases to exist by filing the updated data in the CIMS portal. 3) The Chief Compliance Officer of the UCB or any other official designated by the Board of the UCB for the purpose shall certify that the data on DLAs submitted by them on the CIMS portal is correct and the DLAs are compliant with all the extant regulatory instructions, including the provisions of this Chapter, as updated from time to time. 4) Without prejudice to the generality of the above, the Chief Compliance Officer/ other official designated by the Board of the UCB shall certify the following aspects:
5) UCB shall ensure the correctness and timeliness of information regarding DLAs, as the data, as submitted by the UCB on CIMS, shall be published on the website of RBI in an automated manner and RBI shall not verify/ validate the data submitted on CIMS. All issues and grievances of customers concerning DLAs shall be addressed and dealt with by the UCB directly. 6) UCB shall ensure that the inclusion of any third party DLAs deployed by them as part of above reporting, shall not be construed by the DLAs or any associated entity as conferring any form of registration, authorization, or endorsement by the Reserve Bank. UCB shall also ensure that such inclusion is not misrepresented in any marketing, promotional, or other materials issued by or on behalf of the DLAs. E. Loss sharing arrangement in case of default 19. Eligibility as DLG provider
20. Due diligence and other requirements with respect to DLG provider
21. Restrictions on entering into DLG arrangements
22. Structure of DLG arrangements 1) DLG arrangements shall be backed by an explicit and legally enforceable contract between the UCB and the DLG provider. Such contract, among other things, shall contain the following details:
23. Forms of DLG 1) UCB shall accept DLG only in one or more of the following forms:
24. Cap on DLG 1) UCB shall ensure that the total amount of DLG cover on any outstanding portfolio which is specified upfront shall not exceed five per cent of the total amount disbursed out of that loan portfolio at any given time. In case of implicit guarantee arrangements, the DLG Provider shall not bear performance risk of more than the equivalent amount of five per cent of the underlying loan portfolio. 2) The portfolio over which DLG can be offered shall consist of identifiable and measurable loan assets which have been sanctioned (the ‘DLG set’). This portfolio shall remain fixed for the purpose of DLG cover and is not meant to be dynamic. 3) Illustrative examples on cap on DLG:. Illustration 1 Assume that as on April 1, 2024 the RE earmarks a portfolio of ₹40 crore (out of the total sanctioned loans) under a DLG arrangement (DLG set). This portfolio shall remain "frozen" for the purpose of the specific DLG arrangement - meaning that no loan assets can be added or removed from it, except through loan repayment/ write-off. The UCB can have such multiple DLG sets. The ceiling for DLG cover on such portfolio shall be fixed at ₹2 crore (5% of ₹40 crore), which shall get activated proportionately as and when the loans are disbursed. Illustration 2 Assume that out of the above DLG set, loans amounting to ₹10 crore are disbursed immediately. Then as on April 1, 2024, the DLG cover available for the portfolio shall be ₹0.5 crore (5% of disbursed). Subsequently, if loans of ₹10 crore are further disbursed on April 15, 2024, the DLG cover shall proportionately increase to ₹1 crore effective April 15, 2024. (Refer table below also for summary of each case) Case 1: As on June 30, 2024, loans worth ₹5 crore mature without any default. In this case, the outstanding portfolio in the books of the UCB would be ₹15 crore and the DLG cover shall remain at ₹1 crore. Case 2: Subsequently, there is a default of ₹2 crore during Q2-2024 and consequently the UCB invokes the entire DLG of ₹1 crore (assuming that till date zero principal/interest have been received towards these loans). In this case, as of Sept 30, 2024 the outstanding portfolio in the books of the UCB shall be ₹15 crore (₹20 crore original portfolio less ₹5 crore loans matured without default) but no headroom for DLG will be available as the maximum permissible DLG cover of ₹1 crore (5% of disbursed) has been exhausted. Case 3: Going further, let’s assume that recovery worth ₹1 crore is made by the RE during October 2024 on the defaulted loans of ₹2 crore. In such a case, the amount of the outstanding portfolio in the books of the UCB as on October 31, 2024 shall come down to ₹14 crore (₹20 crore original portfolio less ₹5 crore loans matured without any default less ₹1 crore loans which were in default and recovered). However, the recovery amount of ₹1 crore cannot be added to reinstate the DLG cover.
25. Recognition of NPA
26. Treatment of DLG for regulatory capital
27. Invocation and tenor of DLG
28. Disclosure requirements
29. Exceptions Guarantees covered under the following schemes/ entities shall not be covered within the definition of DLG:
30. General provisions
Chapter IV - Lending against Gold and Silver Collateral 31. Reserve Bank has restricted lending against primary gold such as gold bullion due to broader macro-prudential concerns as also due to speculative and non-productive nature of gold. However, banks have been permitted to lend against the collateral security of gold jewellery, ornaments and coins for meeting the short-term financing needs of borrowers. The extant regulations are guided, inter alia, by the objective of providing the borrowers an avenue to tide over their tight liquidity conditions by leveraging the gold jewellery, ornaments or coins that are kept idle, while simultaneously addressing the risks for the lenders. Similar concerns and objectives guide a few regulations issued in the past on lending against the collateral of silver. 32. Instructions issued vide these Directions shall be complied with as expeditiously as possible but no later than April 1, 2026. Loans sanctioned prior to the date of adoption of the Directions by the bank shall continue to be governed by the instructions mentioned in the Annex II and applicable before the issuance of these Directions. 33. The credit policy (hereinafter called the policy) of a bank, as required in terms of the chapter – II on ‘Board Approved Policies’, shall include, inter alia, appropriate single borrower limits and aggregate limits for the portfolio of loans against eligible collateral as defined in these Directions; maximum LTV ratio permissible for such loans; action to be taken in cases of breach of LTV ratio; valuation standards and norms; and standards of gold and silver purity. The policy shall also include appropriate documentation to be obtained and maintained for loans proposed to be categorised under priority sector lending. 34. A bank may decide on a suitable approach for lending against collateral of jewellery, ornaments or coins made of gold or silver (“eligible collateral” for this Chapter) as part of its credit risk management framework, consistent, inter alia, with the principle of proportionality and ease of access for small ticket loans. However, detailed credit assessment, including assessment of borrower’s repayment capacity shall be undertaken in case the total loan amount against eligible collateral is above ₹2.5 lakh to a borrower. Provided that in case of Bullet repayment loans, the threshold loan amount for detailed credit assessment shall be the total amount payable at maturity. 35. A bank may renew an existing loan or sanction a top-up loan upon a formal request from the borrower and subject to a credit assessment in accordance with paragraph 34. Such renewal or top-up shall be permitted only within the permissible LTV, and provided the loan is classified as standard. Further, renewal of bullet repayment loan shall be allowed only after payment of accrued interest, if any. The bank shall ensure that such renewals and top-ups are clearly identifiable in its Core Banking System or Loan Processing System. 36. A bank shall not grant any advance or loan: (1) For purchase of gold in any form including primary gold, ornaments, jewellery, or coins, or for purchase of financial assets backed by gold, e.g., units of Exchange-traded funds (ETFs) or units of Mutual Funds; and (2) against primary gold or silver or financial assets backed by primary gold or silver. Provided that a Tier 3 or 4 bank may extend need-based working capital finance to borrowers who use gold or silver as a raw material or as an input in their manufacturing or industrial processing activity, where such gold or silver can also be accepted as security. A bank extending such finance shall ensure that borrowers do not acquire or hold gold for investment or speculative purposes. 37. A bank shall not extend a loan where ownership of the collateral is doubtful. A suitable document or declaration shall be obtained from the borrower in all cases to the effect that the borrower is the rightful owner of the eligible collateral. Multiple or frequent sanction of loans against eligible collateral to the same borrower, aggregating to a value in excess of a threshold to be decided by the lender, must be examined closely as part of the transaction monitoring under the anti-money laundering (AML) framework. 38. A bank shall not: (1) Avail loans by re-pledging gold or silver pledged to it by its borrowers. (2) Extend loans to other lenders, entities or individuals by accepting gold or silver collateral pledged to such lenders, entities, or individuals by their borrowers as collateral. For removal of doubt, it is clarified that the above provision does not preclude a lender from financing another lender against the security of underlying receivables. 39. Tenor of consumption loans in the nature of bullet repayment loans shall be capped at 12 months, which may be renewed in terms of paragraph 37. 40. Loans against ornaments and coins shall be subject to the following:
C. Valuation and Assaying of Gold and Silver collateral 41. Gold or silver accepted as collateral shall be valued based on the reference price corresponding to its actual purity (caratage). For this purpose, the lower of (a) the average closing price for gold or silver, as the case may be, of that specific purity over the preceding 30 days, or (b) the closing price for gold or silver, as the case may be, of that specific purity on the preceding day, as published either by the India Bullion and Jewellers Association Ltd. (IBJA) or by a commodity exchange regulated by the Securities and Exchange Board of India (SEBI) shall be used. 42. If price information for the specific purity is not directly available, the lender shall use the published price available for the nearest available purity and proportionately adjust the weight of the collateral based on its actual purity to arrive at valuation. 43. For the purpose of valuation, only the intrinsic value of the gold or silver contained in the eligible collateral shall be reckoned and no other cost elements, such as precious stones or gems, shall be added thereto. 44. The maximum LTV ratio in respect of consumption loans against the eligible collateral shall not exceed LTV ratios as provided in the table below:
45. The prescribed LTV ratio shall be maintained on an ongoing basis throughout the tenor of the loan. 46. For conduct related aspects, collateral management and other instructions, the bank shall be guided by the instructions contained in Reserve Bank of India (Urban Co-operative Banks – Responsible Business Conduct) Directions, 2025. 47. The bank shall disburse loans into borrower’s bank accounts. All lenders shall comply with the Reserve Bank of India (Urban Co-operative Banks – Know Your Customer) Directions, 2025. Provisions of Sections 269 SS and 269 T of the Income Tax Act, 1961, and associated rules shall be complied with, as may be applicable. 48. In case of bank transfers, the bank shall ensure that: (i) Loan disbursals are made to the borrower’s account and not to a third-party account (except for disbursals covered exclusively under statutory or regulatory mandate (of RBI or of any other regulator), flow of money between lenders for co-lending transactions and disbursals for specific end use, provided the loan is disbursed directly into the bank account of the end-beneficiary); and (ii) Loan servicing, repayment, etc. is executed by the borrower directly in the bank’s account without any pass-through account or pool account of any third party. 49. Running multiple loans simultaneously to a single borrower or a group of related borrowers may be prone to misuse and susceptible to fraud. Consequently, such practices shall be subject to stricter internal audit and supervisory examination. 50. For instructions on disclosure requirements, the bank shall be guided by the instructions contained in of Reserve Bank of India (Urban Co-operative Banks – Financial Statements: Presentation and Disclosures) Directions, 2025. 51. A microfinance loan is defined as a collateral-free loan given to a household having annual household income up to ₹3,00,000. For this purpose, the household shall mean an individual family unit, i.e., husband, wife and their unmarried children. 52. All collateral-free loans, irrespective of end use and mode of application / processing / disbursal (either through physical or digital channels), provided to low-income households, i.e., households having annual income up to ₹3,00,000, shall be considered as microfinance loans. Explanation: To ensure collateral-free nature of the microfinance loan, the loan shall not be linked with a lien on the deposit account of the borrower. B. Assessment of Household Income 53. Each bank shall put in place a board-approved policy for assessment of household income. Indicative methodology for assessment of household income is outlined below: (1) For undertaking the income assessment of a low-income household, information related to following parameters may be captured by the lender: (i) Parameters to capture household profile a) Composition of the household
b) Type of accommodation (owned / rented, etc.) c) Availability of basic amenities (electricity, water, toilet, sewage, LPG connection, etc.) d) Availability of other assets (land, livestock, vehicle, furniture, smartphone, electronic items, etc.) (ii) Parameters to capture household income a) Primary source of income
b) Other sources of income
c) The income assessment as above may be carried out for all earning members with respect to all sources (primary or secondary) of income. While assessing income of all members from all sources, it may be ensured that there is no double counting of income such as counting of salary income of one migrant member also as remittance income for the household. d) While the income computation may be done on a monthly basis, the income assessment for all members and sources may be carried out over a period of minimum one year to ascertain the stability of the household income. (iii) Parameters to capture household expenses a) Regular monthly expenses (food, utilities, transport, house / shop rent, clothing, regular medical costs, school / college fees, etc.) b) Irregular expenses over last one year (medical expenses, house renovation, purchase of household goods, functions, etc.) (2) Self-reported income at 1(ii) above may be corroborated with the profile of household at 1(i) and household expenses at 1(iii). Further, household income may also be verified from other sources (bank account statements of the borrowers, group members, other references in the vicinity, etc.). 54. Self-regulatory organisations (SROs) and other associations / agencies may also develop a common framework based on the indicative methodology. The banks may adopt / modify this framework suitably as per their requirements with approval of their boards. 54. Each bank shall mandatorily submit information regarding household income to the Credit Information Companies (CICs). Reasons for any divergence between the already reported household income and assessed household income shall be specifically ascertained from the borrower(s) before updating the assessed household income with CICs. C. Limit on Loan Repayment Obligations of a Household 56. Each bank shall have a board-approved policy regarding the limit on the outflows on account of repayment of monthly loan obligations of a household as a percentage of the monthly household income. This shall be subject to a limit of maximum 50 per cent of the monthly household income. 57. The computation of loan repayment obligations shall take into account all outstanding loans (collateral-free microfinance loans as well as any other type of collateralized loans) of the household. The outflows capped at 50 per cent of the monthly household income shall include repayments (including both principal as well as interest component) towards all existing loans as well as the loan under consideration. 58. Existing loans, for which outflows on account of repayment of monthly loan obligations of a household as a percentage of the monthly household income exceed the limit of 50 per cent, shall be allowed to mature. However, in such cases, no new loans shall be provided to these households till the prescribed limit of 50 per cent is complied with. 59. Each bank shall provide timely and accurate data to the CICs and use the data available with them to ensure compliance with the level of indebtedness. Besides, the bank shall also ascertain the same from other sources such as declaration from the borrowers, their bank account statements and local enquiries. 60. The bank shall have a board-approved policy to provide the flexibility of repayment periodicity on microfinance loans as per borrowers’ requirement. 61. The bank providing microfinance loans shall refer to:
62. The Directions contained in this chapter provide a harmonised framework for financing of projects in infrastructure and non-infrastructure (including commercial real estate & commercial real estate - residential housing) sectors by banks. 63. The Directions of this chapter shall come into force with effect from October 01, 2025 (the ‘Effective Date’ for this Chapter). 64. The Directions contained in this Chapter shall not apply to projects where financial closure has been achieved as on the effective date. Such projects shall continue to be guided by the existing prudential guidelines on project finance, which otherwise shall be treated as repealed. However, any resolution of a fresh credit event and / or change in material terms and conditions in the loan contract in such projects, subsequent to the effective date, as per these Directions to be eligible to avail resolution benefits as specified under Reserve Bank of India (Urban Co-operative Banks – Resolution of Stressed Assets) Directions, 2025. 65. For the purpose of application of prudential guidelines contained in this Chapter, Projects shall be broadly divided into three phases namely:
B. Prudential Conditions Related to Sanction 66. The credit policies of a bank shall incorporate suitable clauses for sanction of project finance exposures, taking into account inter alia the provisions under this Chapter. 67. For all projects financed by the bank, it shall be ensured that:
68. For a given project, original / extended / actual DCCO, as the case may be, shall be same across all lenders to the project. 69. In under-construction projects where the aggregate exposure of the lenders is up to ₹1,500 crores, no individual bank shall have an exposure which is less than 10% of the aggregate exposure. For projects where aggregate exposure of all lenders is more than ₹1,500 crores, the exposure floor for an individual bank shall be 5% or ₹150 crores, whichever is higher. Provided that, the above minimum exposure requirements shall not apply post-actual DCCO and bank may freely acquire from or sell exposures to other lenders, in compliance with guidelines contained in the Reserve Bank of India (Urban Co-operative Banks – Transfer and Distribution of Credit Risk) Directions, 2025 as updated from time to time. Prior to actual DCCO, lenders may acquire from or sell exposures to other lenders under a syndication arrangement (as Reserve Bank of India (Urban Co-operative Banks – Transfer and Distribution of Credit Risk) Directions, 2025), provided the share of individual bank is in adherence to the above limits. 70. The bank shall ensure that all applicable approvals / clearances for implementing / constructing the project are obtained before financial closure. An indicative list of such pre-requisite approvals / clearances includes environmental clearance, legal clearance, regulatory clearances, etc., as applicable to the project. 71. Approvals / clearances which are contingent upon achievement of certain milestones in terms of project completion shall be deemed to be applicable only when such milestones are achieved. For example, consent to operate a boiler can only be applied for after the construction of a boiler. Hence, the same shall not be treated as an applicable mandatory pre-requisite at the time of financial closure. C. Prudential Conditions Related to Disbursement and Monitoring 72. The bank shall ensure availability of sufficient land / right of way for all projects before disbursement of funds, subject to the following minimum requirements:
73. In case of infrastructure projects under PPP model, disbursement of funds shall begin only after declaration of the Appointed Date or its equivalent, for the project. However, in cases where non-fund based credit facilities may be mandated by the concession granting authority as a pre-requisite for declaration of appointed date, the bank may sanction such credit facilities, in adherence with the instructions on non-fund based facilities as prescribed in Chapter VII of this Direction. 74. Further, in respect of the exposures mentioned at paragraph 73above, the original DCCO documented in the financial closure document shall be modified to reflect any change in the ‘Appointed Date’ by the Concession granting authority prior to disbursement of funds by way of a supplementary agreement between a lender and the debtor subject to reassessment of project viability and obtention of sanction from appropriate authorities. A Techno-Economic Viability (TEV) study shall be required for this purpose for all projects where the aggregate exposure of all lenders is ₹100 crores or more. 75. The bank shall ensure that disbursal is proportionate to the stages of completion of the project as also to the progress in equity infusion and other sources of finance, agreed as part of financial closure and receipt of remaining applicable clearances. The lender’s Independent Engineer (LIE) / Architect shall certify the stages of completion of the project. 76. A project finance account may be classified as NPA during any time before actual DCCO as per record of recovery, in terms of Reserve Bank of India (Urban Co-operative Banks – Income Recognition, Asset Classification and Provisioning) Directions, 2025. 77. Creation and Maintenance of Database - Project specific data, in electronic and easily accessible format, shall be captured and maintained by the bank on an ongoing basis. A list of the relevant parameters which shall form part of project finance database, at a minimum, is given below.
78. The bank shall update any change in parameters of a project finance exposure at the earliest, but not later than 15 days from such change. The necessary system in this regard shall be put in place within 3 months of the effective date. 79. The bank shall make appropriate disclosures in their financial statements, under ‘Notes to Accounts’, as specified in Reserve Bank of India (Urban Co-operative Banks – Financial Statements: Presentation and Disclosures) Directions, 2025. Chapter VII - Non Fund Based (NFB) Credit Facilities 80. Non-fund based (NFB) facilities like guarantees, letters of credit, co-acceptances etc. facilitate effective credit intermediation and smooth business transactions. In order to harmonize and consolidate guidelines covering these facilities and to broaden the funding sources for infrastructure financing, the Reserve Bank had issued the following guidelines on non-fund based credit facilities. 81. The directions in this chapter shall not apply to the derivative exposures of the bank, other than the general conditions as laid down in this chapter. 82. The directions of this chapter shall come into force from April 1, 2026, or from any earlier date as decided by the bank as per its internal policy (“effective date”). Extension of any new NFB facility and renewal of an existing NFB facility after the effective date, shall be governed in terms of these Directions. All existing NFB facilities extended / renewed till the effective date shall continue to be governed by the guidelines mentioned in the Annex III and applicable before the issuance of these Directions. 83. The credit policy of the bank shall incorporate suitable provisions for issue of NFB facilities, inter alia, covering aspects relating to type of NFB facilities, limits granted, credit appraisal, security requirement, fraud prevention, overall monitoring mechanism including post-sanction monitoring, delegation matrix, audit and internal controls, compliance to uniform standards issued by standard setting bodies and other safeguards. 84. The bank shall issue a NFB facility only on behalf of a customer having funded credit facility from the bank. Provided that this clause shall not be applicable in respect of:
Explanation: The eligible financial collateral specified herein shall be as defined under Reserve Bank of India (Urban Co-operative Banks – Prudential Norms on Capital Adequacy) Directions, 2025 as updated from time to time 85. The bank shall not issue a NFB facility to any entity assuring redemption / repayment of funds raised by any entity via deposits, issuance of bonds, or in any other form, unless specifically permitted under any regulatory guidelines / directions issued by the Reserve Bank. 86. Once a NFB facility devolves and is converted into a fund based facility, then the prudential norms shall be as applicable to fund based facilities. 87. In general, a guarantee (or a counter-guarantee) issued by the bank (guarantor) shall be irrevocable (i.e., there shall be no clause in the contract that would allow the guarantor to unilaterally cancel the same), unconditional (i.e. there shall be no clause in the contract that could prevent the bank from being obliged to pay out in a timely manner in the event that the original counterparty fails to meet its obligation), incontrovertible and shall contain a clear mechanism for honouring the same without demur as and when invoked. 88. The bank shall put in place suitable internal aggregate / individual ceilings for issuance of guarantees in general and unsecured guarantees in particular. Provided that the total volume of guaranteed obligations outstanding at any time shall not exceed 5% of their total assets as per the previous financial year’s balance sheet. Further, unsecured guarantees shall be restricted to 1.25% of total assets. Any such bank in breach of the above stipulation as on the date of issue of these Directions shall meet the above threshold by April 01, 2027. 89. The provisions of the internal policy relating to guarantees shall, inter alia, address aspects related to invocation and settlement mechanism, claim period, tenor, fee / commission / applicable charges, timelines for release of security, renewal, fraud prevention measures etc. 90. A RE shall honour the guarantee issued by it as and when invoked in accordance with the terms and conditions of the guarantee deed unless there is court order restraining the same C. Usage of electronic-Guarantee 91. Wherever the bank issues an electronic Guarantee, it shall frame a standard operating procedure (SOP) aimed at minimization of manual intervention; meeting system integration requirements; ensuring technological compatibility between the bank’s interface and the electronic Guarantee platforms, audit and internal controls etc. The SOP shall, inter alia, consider the aspects mentioned below. 92. Policy and SOP for issuance of Electronic Guarantees
93. Integration of the systems with regard to for issuance of Electronic Guarantees
94. User Roles for issuance of Electronic Guarantees
95. Control Measures issuance of Electronic Guarantees
96. Other aspects pertaining to issuance of Electronic Guarantees
D. Guarantee favouring another RE 97. The bank shall, in general, not provide a guarantee favouring another RE to enable it to provide any fund based credit facility to an obligor. Provided that this clause shall not be applicable in case of credit facilities extended against guarantees pertaining to trade related transactions. 98. However, the bank may provide a guarantee favouring another RE for a NFB facility extended by the latter. Such guarantee issued by a RE shall be treated as an exposure on the obligor on whose behalf the guarantee has been issued by it, for all purposes including for the calculation of capital adequacy. The exposure of the RE extending credit facility against a guarantee shall be treated as a claim / exposure on the RE which is providing the counter guarantee. 99. Only genuine trade bills shall be co-accepted, and it shall be ensured that the goods covered by bills co-accepted are actually received in the stock accounts of the borrowers. 100. Proper records of the bills co-accepted for each customer shall be maintained, so that the commitments for each customer and the total commitments at a branch can be readily ascertained, and these shall be part of internal audit. 101. The bank shall not co-accept bills drawn by another RE or where the buyer / seller has received funding for the underlying trade transaction from any RE. F. Guarantee and related business involving overseas current or capital account transaction 102. REs permitted as Authorized Dealer (AD) may extend NFB facilities as permitted under the extant regulations / Directions issued under Foreign Exchange Management Act, 1999, for bonafide current or capital account transaction, including guarantees in respect of debt or other liability incurred by an exporter on account of exports from India. 103. AD banks are also permitted to issue guarantee to or on behalf of a foreign entity, or any of its step-down subsidiary in which an Indian entity has acquired control through the foreign entity, which is backed by a counter-guarantee or collateral by the Indian entity or its group company. Provided that such guarantees shall not be issued by banks, including overseas branches / subsidiaries of Indian banks, for the purpose of raising loans / advances of any kind by the foreign entity except in connection with the ordinary course of business overseas. Further while extending such guarantees, banks shall ensure effective monitoring of the end use of such facilities and its conformity with the business needs of such entities. 104. For disclosure of the details of NFB credit facilities, the bank shall be guided by Reserve Bank of India (Urban Cooperative Banks – Financial Statements: Presentation and Disclosures) Directions, 2025. 105. The Directions in this chapter have been issued without prejudice to Directions under Foreign Exchange Management Act (FEMA), 1999; Foreign Exchange Management (Guarantees) Regulations, 2000, notified vide Notification No. FEMA 8/2000-RB dated May 03, 2000; as amended from time to time. 106. Notwithstanding paragraph 105above, RE shall comply with all the related regulatory norms including exposure norms issued by RBI as amended from time to time Chapter VIII - Housing Finance 107. UCBs are permitted to extend housing loans within specified limits from their own resources. However, wherever banks are still required to obtain special permission of the Registrar for financing housing societies, it is suggested that these banks shall obtain general permission to finance housing societies subject to such terms and conditions as may be prescribed for the purpose. A. Eligible Category of Borrowers 108. UCBs may grant loans to the following categories of borrowers:
B. Eligibility for Housing Finance 109. The borrowers in the above categories will be eligible for finance for the following purposes:
C. Maximum Loan Amount & Margins 110. 1) UCBs, based on their commercial judgment and other prudential business considerations, with the approval of their Board of Directors, are free to identify the eligible borrowers, decide margins and grant housing loans depending upon the repaying capacity of borrowers 2) Housing loans to individuals shall be subject to the following ceilings:
UCBs are categorized under respective tiers in terms of the Reserve Bank of India (Urban Co-operative Banks – Licensing, Scheduling and Regulatory Classification) Guidelines, 2025. The ceiling on loans to individuals for carrying out repairs / additions / alterations to their dwelling units shall be ₹10 lakh in metropolitan centres (those centres with population of 10 lakh and above) and ₹6 lakh in other centres. 3) The prudential exposure limits for UCBs for a single borrower/party and a group of connected borrowers/parties shall be 15 per cent and 25 per cent, respectively, of their tier-I capital. 111. UCBs may, with the approval of their Boards, determine the rate of interest, keeping in view the size of accommodation, degree of risk and other relevant considerations. UCBs shall also be guided by provisions contained at Reserve Bank of India (Urban Co-operative Banks – Interest Rates on Advances) Directions, 2025. E. Foreclosure Charges / Prepayment Penalty 112. UCBs shall be guided by the provisions contained in Reserve Bank of India (Urban Co-operative Banks – Responsible Business Conduct) Directions, 2025. F. Reset of floating interest rate on EMI based housing loans 113. At the time of sanction of EMI based floating rate housing loans, UCBs shall take into account the repayment capacity of borrowers to ensure that adequate headroom/margin is available for elongation of tenor and/or increase in EMI, in the scenario of possible increase in the benchmark rate during the tenor of the loan. Further, UCBs shall put in place an appropriate policy framework for reset of floating interest rates on EMI based housing loans, complying with the requirements contained in the Reserve Bank of India (Urban Co-operative Banks – Responsible Business Conduct) Directions, 2025. G. Penal charges and Key Facts Statement (KFS) for Loans & Advances 114. UCBs shall comply to instructions on penal charges and KFS contained under Reserve Bank of India (Urban Co-operative Banks – Responsible Business Conduct) Directions, 2025 115. 1) UCBs may secure housing loans either
2) Where this is not feasible, banks may accept security of adequate value in the form of LIC policies, Government Promissory Notes, shares / debentures, gold ornaments or such other security as they deem appropriate. 3) With regard to release of movable/ immovable property documents upon receiving full repayment and closure of loan account, the UCBs shall comply with the instructions contained in Reserve Bank of India (Urban Co-operative Banks – Responsible Business Conduct) Directions, 2025. 116. 1) Housing loans shall be repayable within a maximum period of 20 years, including moratorium or repayment holiday. 2) The moratorium or repayment holiday may be granted:
117. 1) The instalments should be fixed on a realistic basis taking into account the repaying capacity of the borrower. 3) In order to make housing finance affordable, banks may consider fixing the instalments on a graduated basis, if there is reasonable expectation of growth in the income of the borrower in the coming years. Graduated basis means fixing lower repayment instalments in the initial years and gradually increasing the instalment amount in subsequent years coinciding with expected increase in income in subsequent years. K. Classification of Commercial Real Estate 118. Finance extended to the eligible category of borrowers mentioned in paragraph 109 above will only be eligible to be treated as housing finance. While the purpose of the loan shall determine whether the loans granted against the security of immovable property need to be classified as real estate loans, the source of repayment will determine whether the exposure is against commercial real estate. For classification of such loans as Real Estate / Commercial Real Estate, UCBs may be guided by the instructions below: 1) Real Estate is generally defined as an immovable asset - land (earth space) and the permanently attached improvements to it. Income-producing real estate (IPRE) is defined in Reserve Bank of India (Urban Co-operative Banks – Prudential Norms on Capital Adequacy) Directions, 2025 as under: i) "Income-producing real estate (IPRE) refers to a method of providing funding to real estate (such as, office buildings to let, retail space, multifamily residential buildings, industrial or warehouse space, and hotels) where the prospects for repayment and recovery on the exposure depend primarily on the cash flows generated by the asset. The primary source of these cash flows would generally be lease or rental payments or the sale of the asset. The borrower may be, but is not required to be, an SPE (Special Purpose Entity), an operating company focused on real estate construction or holdings, or an operating company with sources of revenue other than real estate. The distinguishing characteristic of IPRE versus other corporate exposures that are collateralised by real estate is the strong positive correlation between the prospects for repayment of the exposure and the prospects for recovery in the event of default, with both depending primarily on the cash flows generated by a property". ii) The Income Producing Real Estate (IPRE) is synonymous with Commercial Real Estate (CRE). From the definition of IPRE given above, it may be seen that for an exposure to be classified as IPRE / CRE, the essential feature would be that the funding will result in the creation / acquisition of real estate (such as, office buildings to let, retail space, multifamily residential buildings, industrial or warehouse space, and hotels) where the prospects for repayment would depend primarily on the cash flows generated by the asset. Additionally, the prospect of recovery in the event of default would also depend primarily on the cash flows generated from such funded asset which is taken as security, as would generally be the case. The primary source of cash flow (i.e., more than 50% of cash flows) for repayment would generally be lease or rental payments or the sale of the assets as also for recovery in the event of default where such asset is taken as security. iii) In certain cases where the exposure may not be directly linked to the creation or acquisition of CRE, but the repayment would come from the cash flows generated by CRE. For example, exposures taken against existing commercial real estate whose prospects of repayments primarily depend on rental / sale proceeds of the real estate should be classified as CRE. Other such cases may include extension of guarantees on behalf of companies engaged in commercial real estate activities, corporate loans extended to real estate companies etc. iv) It follows from the definition at para (ii) and (iii) above that if the repayment primarily depends on other factors such as operating profit from business operations, quality of goods and services, tourist arrivals etc., the exposure would not be counted as Commercial Real Estate. v) UCBs should not extend finance for acquisition of land even if it is part of a project. However, finance can be granted to individuals for purchase of a plot, provided a declaration is obtained from the borrower that he intends to construct a house on the said plot, within such period as may be laid down by the banks themselves. Simultaneous Classification of CRE into other Regulatory Categories vi) It is possible for an exposure to get classified simultaneously into more than one category, real estate, CRE, infrastructure etc. as different classifications are driven by different considerations. In such cases, the exposure would be reckoned for regulatory / prudential exposure limit, if any, fixed by RBI or by the bank itself, for all the categories to which the exposure is assigned. For the purpose of capital adequacy, the largest of the risk weights applicable among all the categories would be applicable for the exposure. The rationale for such an approach is that, while at times certain classifications / categorizations could be driven by socio-economic considerations and may be aimed at encouraging flow of credit towards certain activities, these exposures should be subjected to appropriate risk management / prudential / capital adequacy norms so as to address the risk inherent in them. Similarly, if an exposure has sensitivity to more than one risk factor it should be subjected to the risk management framework applicable to all the relevant risk factors. vii) In order to assist banks in determining as to whether a particular exposure should be classified as CRE or not, some examples based on the principles described above are given below. Based on the above principles and illustrations given, banks should be able to determine, whether an exposure not included in the illustrative examples is a CRE or not and should record a reasoned note justifying the classification. Illustrative Examples A. Exposures which should be classified as CRE i) Loans extended to builders for construction of any property which is intended to be sold or given on lease (e.g., loans extended to builders for housing buildings, hotels, restaurants, gymnasiums, hospitals, condominiums, shopping malls, office blocks, theatres, amusement parks, cold storages, warehouses, educational institutions, industrial parks). In such cases, the source of repayment in normal course would be the cash flows generated by the sale / lease rentals of the property. In case of default of the loan, the recovery will also be made from sale of the property if the exposure is secured by these assets as would generally be the case. ii) Loans for Multiple Houses intended to be rented out The housing loans extended in cases where houses are rented out need to be treated differently. If the total number of such units is more than two, the exposure for the third unit onwards may be treated as CRE exposure as the borrower may be renting these housing units and the rental income would be the primary source of repayment. iii) Loans for Integrated Township Projects Where the CRE is part of a big project which has small non-CRE component, it will be classified as CRE exposure since the primary source of repayment for such exposures would be the sale proceeds of buildings meant for sale. iv) Exposures to Real Estate Companies In some cases, exposure to real estate companies is not directly linked to the creation or acquisition of CRE, but the repayment would come from the cash flows generated by Commercial Real Estate. Such exposures illustratively could be: • Corporate Loans extended to these companies • Investments made in the debt instruments of these companies • Extension of guarantees on behalf of these companies v) General Purpose loans where repayment is dependent on real estate prices Exposures intended to be repaid out of rentals / sale proceeds generated by the existing CRE owned by the borrower, where the finance may have been extended for a general purpose. B. Exposures which may not be classified as CRE i) Exposures to entrepreneurs for acquiring real estate for the purpose of their carrying on business activities, which would be serviced out of the cash flows generated by those business activities. The exposure could be secured by the real estate where the activity is carried out, as would generally be the case, or could even be unsecured. a. Loans extended for construction of a cinema theatre, establishment of an amusement park, hotels and hospitals, cold storages, warehouses, educational institutions, running haircutting saloons and beauty parlours, restaurant, gymnasium etc. to those entrepreneurs who themselves run these ventures would fall in this category. Such loans would generally be secured by these properties. For instance, in the case of hotels and hospitals, the source of repayment in normal course would be the cash flows generated by the services rendered by the hotel and hospital. In the case of a hotel, the cash flows would be mainly sensitive to the factors influencing the flow of tourism, not directly to the fluctuations in the real estate prices. In the case of a hospital, the cash flows in normal course would be sensitive to the quality of doctors and other diagnostic services provided by the hospital. In these cases, the source of repayment might also depend to some extent upon the real estate prices to the extent the fluctuation in prices influence the room rents, but it will be a minor factor in determining the overall cash flows. In these cases, however, the recovery in case of default, if the exposure is secured by the Commercial Real Estate, would depend upon the sale price of the hotel / hospital as well as upon the maintenance and quality of equipment and furnishings. The above principle will also be applicable in the cases where the developers / owners of the real estate assets (hotels, hospitals, warehouses, etc.) lease out the assets on revenue sharing or profit sharing arrangement and the repayment of exposure depends upon the cash flows generated by the services rendered, instead of fixed lease rentals. b. Loans extended to entrepreneurs, for setting up industrial units will also fall in this category. In such cases, the repayment would be made from the cash flows generated by the industrial unit from sale of the material produced which would mainly depend upon demand and supply factors. The recovery in case of default may partly depend upon the sale of land and building if secured by these assets. Thus, it may be seen that in these cases the real estate prices do not affect repayment though recovery of the loan could partly be from sale of real estate. ii) Loans extended to a company for a specific purpose, not linked to a real estate activity, which is engaged in mixed activities including real estate activity. For instance, a company has two divisions. One division is engaged in real estate activity, and other division is engaged in power production. An infrastructure loan, for setting up of a power plant extended to such a company, to be repaid by the sale of electricity would not be classified as CRE. The exposure may or may not be secured by plant and machinery. iii) Loans extended against the Security of future rent receivables A few banks have formulated schemes where the owners of existing real estate such as shopping malls, office premises, etc. have been offered finance to be repaid out of the rentals generated by these properties. Even though such exposures do not result in funding / acquisition of commercial real estate, the repayment might be sensitive to fall in real estate rentals and such exposures should be classified as CRE. However, if there are certain in built safety conditions which have the effect of delinking the repayments from real estate price volatility like, the lease rental agreement between the lessor and lessee has a lock in period which is not shorter than the tenor of loan and there is no clause which allows a downward revision in the rentals during the period covered by the loan banks can classify such exposures as non CRE. Banks may, however, record a reasoned note in all such cases. iv) Credit facilities provided to construction companies which work as Contractors The working capital facilities extended to construction companies working as contractors, rather than builders, will not be treated as CRE exposures because the repayment would depend upon the contractual payments received in accordance with the progress in completion of work. v) Financing of acquisition / renovation of self-owned office / company premises Such exposures will not be treated as CRE exposures because the repayment will come from company revenues. The exposures to industrial units towards setting up of units or projects and working capital requirement, etc. would not be treated as CRE exposures. 119. As loans to the residential housing projects under the Commercial Real Estate (CRE) Sector exhibit lesser risk and volatility than the CRE Sector taken as a whole, a separate sub-sector called ‘Commercial Real Estate– Residential Housing’ (CRE-RH) has been carved out from the CRE Sector. CRE-RH would consist of loans to builders/developers for residential housing projects (except for captive consumption) under CRE segment. Such projects should ordinarily not include non-residential commercial real estate. However, integrated housing projects comprising some commercial space (e.g. shopping complex, school, etc.) can also be classified under CRE-RH, provided that the commercial area in the residential housing project does not exceed 10% of the total Floor Space Index (FSI) of the project. In case the FSI of the commercial area in the predominantly residential housing complex exceeds the ceiling of 10%, the project loans shall be classified as CRE and not CRE-RH. 120. UCBs shall not exceed the limit prescribed for grant of housing, real estate, commercial real estate loans even for the funds obtained from higher financing agencies and refinance from National Housing Bank. K. Additional / Supplementary Finance 121.
122.
M. Advances to Builders / Contractors 123.
N. Housing Loans under Priority Sector 124. Instructions on loans to Housing sector eligible for priority sector classification shall be as per Master Directions - Reserve Bank of India (Priority Sector Lending – Targets and Classification) Directions, 2025 dated March 24, 2025, as amended from time to time. 125. 1) A number of cases have come to the notice of Reserve Bank, where unscrupulous persons have defrauded the banks by obtaining multiple bank finance against the same property by preparing a number of sets of the original documents and submitting the same to various banks for obtaining housing finance. Similarly, the salary certificates of employees of certain public sector undertakings were fabricated, so as to match the requirement of banks for availing higher amounts of loan. The estimates given were also on the higher side, so as to avoid contribution of margin money by the borrowers. Such frauds could take place on account of laxity on the part of the bank officials to follow the laid down procedures for verifying the genuineness of the documents submitted by borrowers independently through their own advocates / solicitors. Banks should, therefore, take due precaution while accepting various documents. 2) Banks shall satisfy themselves that loans extended by them are not for unauthorized construction or for misuse of properties / encroachment on public land. 3) In a case which came up before the Hon'ble High Court of Judicature at Bombay, the Hon'ble Court observed that the bank granting finance to housing / development projects should insist on disclosure of the charge / or any other liability on the plot, in the brochure, pamphlets etc., which may be published by developer / owner inviting public at large to purchase flats and properties. The Court also added that this obviously would be part of the terms and conditions on which the loan may be sanctioned by the bank. Keeping in view the above observations, while granting finance for eligible housing schemes, UCBs are advised to stipulate as part of terms and conditions that:
126. The Bureau of Indian Standards (BIS) formulates comprehensive building Code namely National Building Code (NBC) of India providing guidelines for regulating the building construction activities across the country. The Code, updated from time to time contains all the important aspects relevant to safe and orderly building development such as administrative regulations, development control rules and general building requirements; fire safety requirements; stipulations regarding materials, structural design and construction (including safety); and building and plumbing services. Adherence to NBC will be advisable in view of the importance of safety of buildings especially against natural disasters. Banks' boards may consider this aspect for incorporation in their loan policies. Further information regarding the NBC can be accessed from the website of Bureau of Indian Standards (http://www.bis.gov.in/). 127. This Chapter is applicable on Authorised Dealer UCBs who are allowed to undertake Export Finance. B. Rediscounting of Export Bills Abroad 128. The details of the scheme on ‘Rediscounting of Export is furnished below: 1) Scheme (i) It will be comparatively easier to have a facility against bills portfolio (covering all eligible bills) than to have a rediscounting facility abroad on bill by bill basis, as various rediscounting agencies may require detailed information relating to the underlying transactions, such as names of exporters and importers, commodities exported, letter of credit details (if covered as such) etc. Authorised Dealers in India (ADs) may, therefore, arrange a "Bankers Acceptance Facility" (BAF) there against. Each AD can have his own BAF limit/s fixed with an overseas bank or a rediscounting agency or an arrangement with any other agency such as factoring agency (in case of factoring arrangement, it should be on "without recourse" basis only). The BAF may be covered by a collateralised document, BAF should be arranged without any margin. There will, however, be no bar if rediscounting facility on bill to bill basis is arranged by an AD in case of any particular exporter, especially for large value transactions. (ii) The exporter, on their own can arrange for themselves a line of credit with an overseas bank or any other agency (including a factoring agency) for discounting their export bills direct subject to the following conditions:
2) Eligibility Criteria (i) The Scheme will cover mainly export bills with usance period upto 180 days from the date of shipment (inclusive of normal transit period and grace period, if any). There is, however, no bar to include demand bills if overseas institution has no objection to it. (ii) In case borrower is eligible to draw usance bills for periods exceeding 180 days as per the extant instructions of FED, Post-shipment Credit under the EBR may be provided beyond 180 days. (iii) The facility under the Scheme of Rediscounting may be offered in any convertible currency. (iv) For operational convenience, the BAF Scheme shall be centralised at a branch designated by the AD. There shall, however, be no bar for other branches of the UCB to operate the Scheme as per their internal guidelines/instructions. 3) Source of on-shore funds There will be no bar on ADs to utilise the foreign exchange resources available with them in Exchange Earners Foreign Currency Accounts, (EEFC), Resident Foreign Currency Accounts (RFC), Foreign Currency (Non-Resident) Accounts (Banks) Scheme, to discount usance bills and retain them in their portfolio without resorting to rediscounting. In the case of demand bills (subject to what has been stated in paragraph 2 (a) above), these may have to be routed through the existing post-shipment credit facility or by way of foreign exchange loans to the exporters out of the foreign currency balances available with banks in the Schemes ibid. 4) Facility of rediscounting "with recourse" and "without recourse" It is recognised that it will be difficult to get "without recourse" facility from abroad under BAF on any other facility. Therefore, the bills may be rediscounted "with recourse", However, if an AD is in position to arrange "without recourse" facility on competitive terms, it is permitted to avail itself as such a facility. 5) Accounting aspects (i) The Rupee equivalent of the discounted value of the export bills will be payable to the exporter and the same should be utilised to liquidate the outstanding export packing credit. (ii) As the discounting of bills/extension of foreign exchange loans (DP bills) will be in actual foreign exchange, ADs may apply appropriate spot rate for the transactions. (iii) The rupee equivalents of discounted amounts/ foreign exchange loan may be held in the banks books distinct from the existing post shipment credit accounts. (iv) In case of overdue bills, UCBs may charge interest from the due date to the date of crystallization as per the interest rate policy of the UCB. 6) Exemption from CRR/SLR requirements. If UCBs avail of BAF while rediscounting export bills abroad, the liabilities arising out of utilisation of the limits under the said facility would be exempted from the maintenance of cash reserve ratio and statutory liquidity ratio requirements and accordingly, these liabilities will not form part of net demand and time liabilities for the purpose of reserve requirements. 7) Restoration of limits and availability of export benefits such as EEFC account As stated in paragraph 128 (4) above, "Without Recourse" facility may not generally be available. Thus the restoration of limits and the availability of export benefits, such as credit to EEFC accounts, in case of "with recourse" facility, will be effected only on realisation of export proceeds and not on the date of discounting/rediscounting of the bills. However, if the bills are rediscounted "without recourse", the restoration of limits and availability of export benefits may be given effect immediately on rediscounting. 8) ECGC Cover In the case of export bills rediscounted "with recourse", there will not be any change in the existing system of coverage provided by Export Credit Guarantee Corporation (ECGC) as the liability of the exporter continues till the relative bill is retired/paid. In other cases, where the bills are rediscounted without recourse; the liability of ECGC ceases as soon as the relative bills are rediscounted. 129. To facilitate the growth of local market for rediscounting export bills, establishment and development of an active interbank market is desirable. It is possible that ADs may hold bills in their own portfolio without rediscounting. However it is felt that in case of need, the ADs should also have access to the local markets which will enable the country to save foreign exchange to the extent of the cost of rediscounting. Further, as different UCBs may be having BAF for varying amounts, it will be possible for a UCB which has balance available in its limit, to offer rediscounting facility to another UCB which may have exhausted its limits or could not arrange for such a facility. C. Pre-shipment Credit in Foreign Currency (PCFC) 130. Primary co-operative banks which are Authorised Dealers in India (ADs) are allowed to extend PCFC to enable the Indian exporters to compete in the international market. 131. The scheme will cover both domestic as well as imported inputs of exported goods. The operational instructions in this regard are given below: 1) Scheme i) The Pre-shipment Credit in Foreign Currency will be available to cover both the domestic and imported inputs of the goods exported from ADs in India. The facility will be available in one of the convertible currencies. The credit shall be self-liquidating in nature and accordingly after the shipment of goods, the bills shall be eligible for discounting/rediscounting or for post-shipment credit in foreign currency. This will be an additional window in addition to rupee packing credit scheme. ii) Thus, the exporter will have the following two options to avail of export finance:
2) Source of funds The foreign exchange balances available with the UCB in Exchange Earners Foreign Currency Accounts (EEFC), Resident Foreign Currency Account (RFC) and funds mobilised under Foreign Currency (Non-Resident) Accounts (Banks) Scheme could be utilised for financing the pre-shipment credit in foreign currency. As Authorised Dealers (ADs) in India are already allowed to raise lines of credit to finance imported components of the exported goods, it will be in order for the ADs in India to raise short term foreign currency loans. 3) Period of Credit The PCFC will be available for a maximum period of 360 days.; any extension of the credit will be subject to the same terms and conditions as applicable for extension of rupee packing credit. Any further extension will shall be subject to the terms and conditions fixed by the AD concerned and if no export takes place within 360 days, the pre-shipment credit in foreign currency will be adjusted at TT selling rate for the currency concerned. In such cases ADs can arrange to remit foreign exchange to repay the loan or line of credit raised abroad and interest without prior permission of RBI. 4) Eligibility Criteria (i) Pre-shipment Credit in Foreign Currency shall be extended only on the basis of confirmed/firm export orders or confirmed letters of credit (L/Cs). (ii) With a view to promote export and also to allow operational flexibility both to the exporters and UCBs, 'Running Account' Facility is permitted under the PCFC Scheme to all commodities on the same lines of the facility available under rupee credit subject to the following conditions:
(iii) For operational convenience, the PCFC Scheme may be centralised at a branch designated by the AD. There shall be no bar for other branches of the UCB to operate the Scheme as per their internal guidelines/instructions. 5) Interest rate (i) UCBs are free to determine interest rates on export credit in foreign currency using any widely accepted Alternative Reference Rate (ARR) in the currency concerned for floating as well as fixed rate loans in accordance with their Board-approved policy and subject to the relevant guidelines contained in the Master Circular- Management of Advances- UCBs, as amended from time to time or any other applicable regulation. 6) Accounting Procedure (i) In case full amount of PCFC on part thereof is utilised to finance domestic input, ADs shall apply appropriate spot rate for the transaction. (ii) As the facility of PCFC will be self-liquidating in nature, the PCFC should be liquidated by submission of export documents for discounting/rediscounting under the schemes of discounting/rediscounting of export bills. (iii) In case of cancellation of export order, the PCFC may be liquidated by selling equivalent amount of foreign exchange (principal plus interest) at TT selling rate prevailing on the date of liquidation. Authorised primary co-operative banks may also extend PCFC to such exporters subsequently after ensuring that the earlier cancellation of PCFC was due to genuine reasons and not for speculative purposes. 7) General The following points shall also have a bearing on the operation of the Scheme. (i) The applicable benefits such as credit of eligible percentage of export proceeds to EEFC Account etc. to the exporters will accrue only after realisation of the export bills and not at the stage of conversion of pre-shipment credit to post-shipment credit (except when bills are discounted/rediscounted 'without recourse'). (ii) ECGC cover will be available in rupees only, whereas PCFC is in foreign currency. (iii) For the purpose of reckoning the authorised primary co-operative banks performance in extending export credit, the rupee equivalent of the PCFC will be taken into account. 132. The broad aspects of the Scheme are given below: (i) Authorised primary co-operative banks in India shall arrange for lines of credit from abroad. Banks may negotiate lines of credit with overseas banks for the purpose of grant of PCFC to exporters without the prior approval of the RBI. (ii) The applicable benefit to the exporters will accrue only after the realisation of the export bills or when the resultant export bills are rediscounted 'without recourse' basis. (iii) The borrowings under the Scheme will be subject to compliance with the existing credit disciplines. 133. Taking into account the peculiar nature of the diamond trade and especially that a major portion of the Export Packing Credit is required for import of rough diamonds, for which a firm export order/confirmed Letter of Credit cannot be produced, 'Running Account' facility is extended for export of Diamonds under PCFC Scheme subject to the following conditions: (i) PCFC will be granted on the basis of the method followed hitherto under Rupee Export Packing Credit Scheme conforming to normal credit discipline. (ii) PCFC will be liquidated by export proceeds only. (iii) The availability of 'Running Account’ Facility will be subject to review after a year D. Pre-shipment Credit in Foreign Currency (PCFC) – Clarifications 134. There are certain relaxation/clarifications on some of the operational aspects of the Scheme for guidance of the UCBs: a) PCFC is self-liquidating in nature and accordingly the export bills will have to be discounted or covered by grant of foreign currency loans (DP bills) to liquidate outstanding PCFC. Thus, the question of sending export bills for collection does not arise. b) Surplus of export proceeds available after adjusting relative export finance and credit to EEFC Account should not be allowed for setting off of import bills. c) Besides the source of funds (for extending credit under PCFC Scheme) indicated in paragraph 131(2), banks are permitted to utilise the foreign currency balances available under Escrow Accounts and Exporters Foreign Currency Accounts for the purpose subject to ensuring that the requirements of funds of the account holders for permissible transactions are met and the limit prescribed for maintaining maximum balance in the account under broad based facility is not exceeded. d) UCBs should draw on the line of credit arranged only to the extent of loans granted by them to the exporters under the PCFC. However, where the overseas bank making available the line of credit stipulate a minimum amount for drawals which should not be very large, the small unutilised portion may be managed by the UCB within their foreign exchange position and AGL limits. Similarly, any early delivery (pre-payment by the exporter) may also be taken within their foreign exchange position on AGL limits. e) In certain cases, UCBs have been permitted to extend EPC higher than the E.D.B. value or domestic value of goods exported, such as HPS groundnut/oil extracts and in such cases excess EPC is to be liquidated within 30 days, from the date of drawal. As PCFC is self-liquidating in foreign exchange, it will not be feasible to liquidate PCFC if allowed in such cases. UCBs may grant EPC both in Rupees and in foreign currency to cover the export of above items, restricting, PCFC only to the portion to be exported EPC in respect of non-exported portion in Rupees should be liquidated within 30 days as per existing stipulation. f) UCBs are also permitted to extend PCFC on the basis of irrevocable L/C or L/C of a first class internationally reputed bank on their judgement. h) To enable the exporters to have operational flexibility it will be in order for UCBs to extend PCFC in one convertible currency in respect of an export order involved in another convertible currency. For example, an exporter can avail of PCFC in US $ against an export order involved in DM. The risk and cost of cross currency transaction will be that of the exporter. g) UCBs are permitted to allow an exporter to book forward contract on the basis of confirmed export order prior to availing of PCFC. On availing of PCFC by exporter, the contract should be cancelled at prevailing market rates to the extent of PCFC amount. h) As regards the minimum lots of transactions, it is left to the operational convenience of the UCBs to stipulate the minimum lots taking into account the availability of their own resources. However, while fixing the minimum lot UCBs may take into account the needs of their small customers also. i) UCBs are permitted to extend PCFC for exports to ACU countries. E. Extension of Facility of Pre-shipment Credit in Foreign Currency (PCFC) for Deemed Exports 135. PCFC may be allowed for Deemed Exports only for supplies to projects financed by multilateral/bilateral agencies/funds. 136. The PCFC released should be liquidated by grant of foreign currency loan at post-supply stage, for a maximum period of 30 days or upto the date of payment by the project authorities, whichever is earlier, subject to compliance with other conditions relating to Deemed Exports. F. Credit extended to Diamond Exporters Embargo on Import of Conflict Diamonds Liberia 137. UN Security Council Resolution No.1343 (2001) has imposed a ban on the direct or indirect import of all rough diamonds from Liberia, whether or not such diamonds originated in Liberia. Accordingly, it has been decided that UCBs should obtain afresh the modified undertaking in the enclosed format in Annex IV from all their clients who are being extended credit for doing any business relating to diamonds. 138. Further, the UN Security Council Resolution Nos.1173, 1176, 1306(2000) and 1343(2001) adopted so far on conflict diamonds require that any violation of the ban/prohibition imposed should be reported to the UN immediately. In view of this, you may report to us promptly violation of provisions of these UN Regulations as and when noticed. G. Exports to Asian Clearing Union Countries - Granting of Export Credit in Foreign Currency under Pre-shipment Credit in Foreign Currency (PCFC), Export Bills Rediscounting (EBR) and Post-shipment Credit denominated in Foreign Currency (PSCFC) Schemes 139. UCBs are permitted to extend pre-shipment and post-shipment credit in foreign currency under captioned schemes for exports to ACU countries. 140. Other terms, conditions, stipulations prescribed for operation of the PCFC/EBR and PSCFC schemes will remain unchanged. H. Report of the Committee on Structure of Export Credit - Streamlining of Procedure for Loans and Advances with particular reference to Export Credit 141. UCBs are advised to ensure the implementation of guidelines such as delegation of powers to overseas branches, raising the threshold limit for obligatory formation of consortium etc., as they relate to streamlining the sanctioning, procedures for loans and advances with particular reference to export credit and introduction of a suitable mechanism to deal with exporters' grievances particularly with regard to timely sanction of various limits and adequacy of credit. UCBs shall also take steps to implement the suggestions regarding a time-frame for sanction of fresh/enhanced adhoc limits or for renewal of the limits; delegation of adequate powers to various functionaries and periodical review of such delegation; conducting of periodical seminars and workshops to educate the borrowers, advising the internal inspection teams to offer specific comments on timely sanction of export credit limits within the prescribed time-frame, submission of quarterly review note furnishing position of credit limits to exporters in so far as they apply to your bank. I. Payment of Compensation to the Exporters in respect of Delayed Credit of Export Bills 142. It has been observed that generally the export proceeds are not being credited to exporters' accounts promptly on receipt of relative advices and compensation to the exporters for the delay on the part of branches of UCBs in payment of export bills are paid to them only after their representations. In respect of the delay in affording credit in respect of credit advices complete in all respects, the compensation stipulated by FEDAI should be paid to the exporter client, without waiting for a demand from the exporter. UCBs should devise a system to monitor timely credit of the export proceeds to the exporter's account and payment of compensation as per FEDAI rules. The internal audit and inspection teams of UCBs may be advised to specifically comment on these aspects in the reports. J. Financing of Exports - Timely and Adequate Provision of Export Credit 143. Banks shall ensure timely and adequate credit to the exporters to meet their genuine requirements and also properly guide and educate them on procedural formalities and export opportunities. 144. Banks shall review the existing arrangement in this regard and take such action as is necessary, including delegating enough powers to branch managers/regional managers to dispose of export credit proposals promptly and ensure smooth flow of credit to export sector. 145. Banks shall strive to improve the customer service in view of the complexities of the export trade and complete the formalities expeditiously. 146. Banks shall entrust a senior official to review aspects, locate the inadequacies and suggest suitable remedial measures. The Board of Directors may also be kept apprised of the action taken to improve the services rendered to exporters. Chapter X - Loans Against Financial Assets 147. Bank Finance to Stock Brokers 1) UCBs are prohibited from extending any fund based or non fund based credit facilities, whether secured or unsecured, to stockbrokers against shares and debentures / bonds, or other securities, such as fixed deposits, LIC policies etc. 2) UCBs are not permitted to extend any facility to commodity brokers. This would include issue of guarantees on their behalf.
M. Bank Finance against Preference Shares and Long Term (Subordinated) Bonds 148. UCBs shall not grant any loan or advance to any person for purchasing their own Perpetual Non Cumulative Preference Shares (PNCPS), Tier-II preference shares (such as Perpetual Cumulative Preference Shares, Redeemable Non Cumulative Preference Shares and Redeemable Cumulative Preference Shares), Perpetual Debt instruments (PDI) and Long Term Subordinated bonds (LTSB). UCBs shall not grant any loan or advance to any person for purchasing PNCPS, Tier-II preference shares, PDI and LTSB of other banks. UCBs should not invest in PNCPS (Tier-I), other Preference shares (Tier-II) and also in Long Term (Subordinated) Deposits (Tier-II), PDI, LTSB issued by other banks; nor should they grant advances against the security of the above instruments issued by them or other banks. N. Advances against Fixed Deposit Receipts (FDRs) Issued by Other Banks 149. The banks should desist from sanctioning advances against FDRs / term deposits of other banks. 150. Maximum Ceiling on Advances to Nominal Members UCBs may sanction loans to nominal members for short / temporary period and for purchase of consumer durables, subject to the following ceiling:
O. Advances by Salary Earners’ Primary (Urban) Co-operative Banks (SEBs) against Term Deposits of Non-members 151. SEBs are permitted to grant advances against term deposits of non-members, subject to the following conditions:
Chapter XI - Discounting / Rediscounting of Bills by UCBs 152. UCBs shall adhere to the following guidelines while purchasing / discounting / negotiating / rediscounting of genuine commercial / trade bills:
153. UCBs shall open letters of credit (LCs) and purchase / discount / negotiate bills under LCs only in respect of genuine commercial and trade transactions of their borrower constituents who have been sanctioned regular credit facilities by the banks. UCBs shall not, therefore, extend fund based (including bills financing) or non-fund based facilities like opening of LCs, providing guarantees and acceptances to non-constituent borrower or / and non-constituent member of a consortium / multiple banking arrangement. 154. With effect from March 30, 2012, in case of bills drawn under LCs restricted to a particular UCB, and the beneficiary of the LC is not a borrower who has been granted regular credit facility by that UCB, the UCB concerned may, as per their discretion and based on their perception about the credit worthiness of the LC issuing bank, negotiate such LCs, subject to the condition that the proceeds will be remitted to the regular banker of the beneficiary of the LC. However, the prohibition regarding negotiation of unrestricted LCs for borrowers who have not been sanctioned regular credit facilities will continue to be in force. 155. UCBs negotiating bills as above, under restricted LCs, would have to adhere to the instructions of the Reserve Bank / RCS or CRCS regarding share linking to borrowing and provisions of Co- operative Societies Act on membership. 156. For the purpose of credit exposure, bills purchased / discounted / negotiated under LC (where the payment to the beneficiary is not made 'under reserve') will be treated as an exposure on the LC issuing bank and not on the borrower. All clean negotiations as indicated above will be assigned the risk weight as is normally applicable to inter-bank exposures, for capital adequacy purposes. In the case of negotiations 'under reserve' the exposure shall be treated as on the borrower and risk weight assigned accordingly. 157. While purchasing / discounting / negotiating bills under LCs or otherwise, UCBs shall establish genuineness of underlying transactions / documents. 158. UCBs shall ensure that blank LC forms are kept in safe custody as in case of security items like blank cheques, demand drafts etc. and verified / balanced on daily basis. LC forms shall be issued to customers under joint signatures of the bank's authorised officials. 159. The practice of drawing bills of exchange claused 'without recourse' and issuing letters of credit bearing the legend 'without recourse' shall be discouraged because such notations deprive the negotiating bank of the right of recourse it has against the drawer under the Negotiable Instruments Act. UCBs shall not, therefore, open LCs and purchase / discount / negotiate bills bearing the 'without recourse' clause. 160. Accommodation bills shall not be purchased / discounted / negotiated by banks. The underlying trade transactions shall be clearly identified, and a proper record thereof maintained at the branches conducting the bills business. 161. UCBs should be circumspect while discounting bills drawn by front finance companies set up by large industrial groups on other group companies. 162. Bills rediscounts should be restricted to usance bills held by other banks. UCBs should not rediscount bills earlier discounted by NBFCs except in respect of bills arising from sale of light commercial vehicles and two / three wheelers. 163. UCBs may exercise their commercial judgment in discounting of bills of services sector. However, while discounting such bills, UCBs shall ensure that actual services are rendered, and accommodation bills are not discounted. Services sector bills should not be eligible for rediscounting. Further, providing finance against discounting of services sector bills may be treated as unsecured advance and therefore, should be within the limits prescribed by Reserve Bank of India for sanction of unsecured advances. 164. In order to promote payment discipline which would to a certain extent encourage acceptance of bills, all corporate and other constituent borrowers having turnover above threshold level as fixed by the bank's Board of Directors should be mandated to disclose 'aging schedule' of their overdue payables in their periodical returns submitted to banks. Chapter XIV - Bank Finance to Non-Banking Financial Companies (NBFCs) A. Admission of NBFCs as Members 165. UCBs shall not finance NBFCs, other than those engaged in hire-purchase / leasing, subject to obtaining prior approval of the Registrar of Co-operative Societies concerned before admitting such leasing / hire purchase companies as members for the purpose of lending. B. Activities eligible for finance to NBFCs engaged in Hire Purchase / Leasing Activities 166. Within the prescribed credit exposure norms and above stated restrictions, UCBs, with working capital funds aggregating to ₹25 crore and above, may finance the NBFC - Investment and Credit Companies (NBFC-ICC), subject to the following limits:
Note (i) The maximum limit on aggregate bank finance to an NBFC should be within the overall ceiling of borrowing by NBFCs, upto ten times of their NOF. (ii) Bank finance to leasing concerns should be restricted only to "full payout" leases i.e., those leases where the cost of the asset is fully recovered during the primary lease period itself and further it should cover purchases of only new equipment. (iii) As a prudent policy, lease rentals due during the period of next five years should alone be taken into account for the purpose of lending. C. Activities not Eligible for Finance to NBFCs engaged in Hire Purchase / Leasing Activities 167. (1) The following activities undertaken by non-banking financial companies engaged in hire purchase / leasing activities are not eligible for bank credit. As such, these items should be excluded from the build-up of current assets while arriving at permissible bank finance for all categories of NBFCs:
(2) In respect of items indicated at (i) and (ii) above, banks should not make any adjustment in the projected net working capital (NWC). It may be added that the projected NWC represents long-term surplus available to support current operations and, therefore, does not need to be adjusted as a result of changing / pruning the level of current assets while reducing the level of maximum permissible bank finance. D. Financing of NBFCs by Scheduled UCBs 168. Scheduled UCBs may rediscount bills discounted by NBFCs arising from sale of commercial vehicles, including light commercial vehicles, two wheeler and three wheeler vehicles, subject to normal lending safeguards and the following conditions:
Chapter XIII - Miscellaneous Provisions A. Bridge Loans / Interim Finance 169. The grant of bridge loan / interim finance by UCBs to any company (including finance companies) is totally prohibited. 170. The UCBs should not circumvent these instructions by purport and / or intent by sanction of credit under a different nomenclature like unsecured negotiable notes, floating rate interest bonds, etc. as also short-term loans, the repayment of which is proposed / expected to be made out of funds to be or likely to be mobilised from external / other sources and not out of the surplus generated by the use of the asset(s). B. Grant of Loans for Acquisition of / Investing in Small Savings Instruments including Kisan Vikas Patras (KVP) 171. Grant of loans for acquiring / investing in KVPs does not promote fresh savings and, rather, channelise the existing savings in the form of bank deposits to small savings instruments and thereby defeat the very purpose of such schemes. UCBs may therefore ensure that no loans are sanctioned for acquisition of / investing in small savings instruments including KVPs. C. Lending to Public Sector Undertakings 172. UCBs are advised, as a matter of principle, generally not to grant large value loans to Public Sector / Government Undertakings. D. Financing Equipment Leasing and Hire Purchase Financing 173. Consequent to the Government of India notification dated December 12, 1995 specifying 'Hire Purchase' and 'Equipment Leasing' as forms of business in which it is lawful for a primary cooperative bank to engage, Scheduled UCBs are allowed to undertake these activities. Scheduled UCBs are advised to ensure that:
E. Financing for Agricultural Activities 174. UCBs are permitted to finance agricultural activities subject to the following conditions:
G. Limits on unsecured advances 175. The limits on unsecured advances (with or without surety) are as under:
H. Restriction on Advances to Defaulters of Statutory Dues 176. Under the law, employees' contributions to provident fund deducted from wages of the employees / members, for a period of more than six months and not paid to the Commissioner are a first charge on the assets of the borrowers, in the case of the insolvency / winding up of the borrowing employer. In the circumstances, primary (urban) cooperative banks should safeguard their interest vis-à-vis such statutory dues. 177. Therefore, banks should satisfy themselves that there are no arrears of Provident Fund and other statutory dues of the borrowers by obtaining a declaration from them that all such dues have been duly paid. Proof in this regard may be called for only in cases where banks have reason to doubt the borrowers' declaration. Even where a proof is required, it is not necessary to insist on a certificate from the Regional Provident Fund Commissioner; production of a receipt evidencing the payment of the dues or a certificate from the auditors of the borrower or any other similar proof may be considered sufficient. In the case of sick units where there are arrears for reasons beyond the control of the borrowers, banks may continue to consider such cases on merits. Chapter XIII – Repeal and other provisions 178. With the issue of these Directions, the existing Directions, instructions, and guidelines relating to credit facilities for Urban Cooperative Banks, stand repealed, as communicated vide notification dated XX, 2025. The Directions, instructions and guidelines already repealed shall continue to remain repealed. 179. 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. B. Application of other laws not barred 180. 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. 181. 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 |
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