RBI proposes comprehensive overhaul of concentration risk and lending norms for Rural Co-operative Banks

The Reserve Bank of India (RBI) has proposed a comprehensive overhaul of concentration risk and lending norms for Rural Co-operative Banks (RCBs). The central bank has come up with two draft regulations for public comments, a new Reserve Bank of India (Rural Co-operative Banks – Concentration Risk Management) Directions, 2026, and amendments to the Rural Co-operative Banks – Credit Facilities Directions, 2025.

Under the draft framework, the RBI has proposed prudential exposure limits of 20% of Tier-I capital for a single counterparty and 25% for a group of counterparties. A higher limit of 30% of Tier-I capital has been proposed for exposure to a single Primary Agricultural Credit Society (PACS), subject to the relevant state cooperative laws.

The central bank has also proposed to withdraw existing prescribed sectoral exposure limits, except for the real estate sector. The RBI has proposed retaining prudential caps. Aggregate exposure to the sector would be limited to 15% of total loans and advances, while exposure to real estate other than individual housing loans would be capped at 5%. The regulator has also proposed capping aggregate unsecured advances at 15% of total loans and advances, while prescribing limits on unsecured lending to individual borrowers based on the size of the bank.

The central bank noted that rural co-operative banks with deposits exceeding Rs 10,000 crore could sanction housing loans of up to Rs 3 crore per borrower. The limit would be Rs 2 crore for banks with deposits between Rs 1,000 crore and Rs 10,000 crore, Rs 1.4 crore for banks with deposits between Rs 100 crore and Rs 1,000 crore, and Rs 60 lakh for smaller banks.

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