Executive Summary: Based on the Press Release dated August 06, 2026, the Reserve Bank of India has issued two draft Directions overhauling the regulatory framework for Rural Co-operative Banks (RCBs). These drafts—the Concentration Risk Management Directions, 2026, and the Credit Facilities Amendment Directions, 2026—aim to align RCB operations with broader prudential norms by restructuring exposure limits, tiering housing and unsecured loans based on deposit size, and enhancing board-level autonomy for larger institutions.
1. Applicable Entities
Both Draft Directions apply universally to Rural Co-operative Banks (RCBs). In the statutory context, this includes:
- State Co-operative Banks (StCBs): Operating at the apex level within a state.
- Central Co-operative Banks (CCBs/DCCBs): Operating at the district level.
2. Draft RBI (RCB – Concentration Risk Management) Directions, 2026
This draft completely replaces the existing 2025 Directions on Concentration Risk Management, recalibrating how RCBs handle exposure to single parties, groups, and specific sectors.
A. Counterparty Exposure Limits
Specific Changes Required:
- Single Counterparty: Exposure is strictly capped at 20% of Tier-I capital.
- Group of Counterparties: Exposure is capped at 25% of Tier-I capital.
- Primary Agricultural Credit Society (PACS): As an exception, exposure to a single PACS can extend up to 30% of Tier-I capital to support grassroots agricultural lending.
Real-World Example:
If Vidarbha District Central Co-operative Bank has a Tier-I capital of ₹100 Crores, it cannot lend more than ₹20 Crores to ‘ABC Agro Processors’ (a single entity). If ‘ABC Agro Processors’ is part of the ‘ABC Group’, the total loan exposure to all companies within the ABC Group combined cannot exceed ₹25 Crores. However, if the bank is lending to the Ganeshpuri Village PACS, it can lend up to ₹30 Crores.
If Vidarbha District Central Co-operative Bank has a Tier-I capital of ₹100 Crores, it cannot lend more than ₹20 Crores to ‘ABC Agro Processors’ (a single entity). If ‘ABC Agro Processors’ is part of the ‘ABC Group’, the total loan exposure to all companies within the ABC Group combined cannot exceed ₹25 Crores. However, if the bank is lending to the Ganeshpuri Village PACS, it can lend up to ₹30 Crores.
Management Action Plan
- System Configuration: Update the Core Banking System (CBS) to hard-stop any credit sanctions that breach the 20%/25%/30% Tier-I capital thresholds.
- Group Identification: Conduct a KYC data clean-up to identify linked borrowers. Establish a “Group of Counterparties” definition policy approved by the Board to accurately aggregate exposures.
- Portfolio Rebalancing: Identify current accounts nearing or exceeding these proposed limits. Initiate dialogues with these borrowers to either reduce exposure or seek syndicate lending arrangements before the April 2027 deadline.
B. Sectoral Exposure Limits (Real Estate)
Specific Changes Required:
- Withdrawal of General Sectoral Limits: Previous prudential sectoral limits are largely withdrawn, except for the Real Estate sector.
- Aggregate Real Estate Exposure: Capped at 15% of total loans and advances.
- Commercial/Non-Housing Real Estate: Within the 15% limit, exposure to real estate other than individual housing loans (e.g., commercial real estate, builder loans) is strictly capped at 5% of total loans and advances.
Real-World Example:
Kerala State Co-operative Bank has a total loan book of ₹5,000 Crores. It can lend a maximum of ₹750 Crores (15%) to the real estate sector. Out of this ₹750 Crores, the bank wants to fund a commercial shopping mall project and give loans to local builders. The total of these commercial/builder loans cannot exceed ₹250 Crores (5% of ₹5,000 Cr). The remaining ₹500 Crores (or more, if commercial lending is lower) must be allocated to individual home buyers.
Kerala State Co-operative Bank has a total loan book of ₹5,000 Crores. It can lend a maximum of ₹750 Crores (15%) to the real estate sector. Out of this ₹750 Crores, the bank wants to fund a commercial shopping mall project and give loans to local builders. The total of these commercial/builder loans cannot exceed ₹250 Crores (5% of ₹5,000 Cr). The remaining ₹500 Crores (or more, if commercial lending is lower) must be allocated to individual home buyers.
Management Action Plan
- Sector Code Mapping: Ensure all loan accounts are accurately tagged with specific NIC/sector codes in the CBS, distinguishing clearly between “Individual Housing” (CRE-RH) and “Commercial Real Estate” (CRE).
- Board Policy Update: Draft a new Board-approved Real Estate Lending Policy capping CRE at 5%.
- Credit Committee Directives: Instruct the credit sanctioning committees to prioritize individual housing loans over commercial builder loans to optimize the 15% aggregate limit without breaching the 5% sub-limit.
C. Inter-Bank Deposit Limits
Specific Changes Required:
- Inter-bank deposits with any single bank are now capped at 25% of the RCB’s Tier-I capital.
Management Action Plan
- Treasury Audit: Treasury managers must immediately review all current inter-bank fixed deposits and current account balances.
- Diversification Strategy: If deposits with a single commercial or co-operative bank exceed 25% of Tier-I capital, create a staggered withdrawal or non-renewal plan to distribute funds across multiple banking partners before April 2027.
3. Draft RBI (RCB – Credit Facilities) Amendment Directions, 2026
This draft amends the 2025 Directions, introducing a tiered structure based on the deposit size of the RCB, granting more lending capacity and flexibility to larger institutions.
A. Tiered Housing Loan Ceilings
Specific Changes Required:
The maximum limit for individual housing loans (per borrower, per dwelling unit) is now based on the RCB’s deposit base:
| RCB Deposit Size | Maximum Housing Loan Limit (per borrower) |
|---|---|
| > ₹10,000 crore | ₹3 crore |
| > ₹1,000 crore to ₹10,000 crore | ₹2 crore |
| > ₹100 crore to ₹1,000 crore | ₹1.4 crore |
| ≤ ₹100 crore | ₹60 lakh |
Note: A ceiling of 10% of these limits applies to loans for repairs/additions, getting automatically adjusted within the overall limit.
Flexibility: RCBs with deposits > ₹1,000 crore are granted the flexibility to have their Board decide the tenor and moratorium requirements for housing loans, instead of adhering to a strict RBI-mandated schedule.
Real-World Example:
Pune District Central Co-operative Bank has a deposit base of ₹12,000 Crores. Under the new rules, it can offer a housing loan of up to ₹3 Crores to a farmer wanting to build a large house. Furthermore, because its deposits exceed ₹1,000 Cr, the bank’s Board can decide to offer a 25-year repayment tenor with a 2-year moratorium (grace period) during construction, tailoring the product to local market needs. Conversely, a small district bank with ₹80 Cr in deposits is capped at lending ₹60 Lakhs for housing.
Pune District Central Co-operative Bank has a deposit base of ₹12,000 Crores. Under the new rules, it can offer a housing loan of up to ₹3 Crores to a farmer wanting to build a large house. Furthermore, because its deposits exceed ₹1,000 Cr, the bank’s Board can decide to offer a 25-year repayment tenor with a 2-year moratorium (grace period) during construction, tailoring the product to local market needs. Conversely, a small district bank with ₹80 Cr in deposits is capped at lending ₹60 Lakhs for housing.
Management Action Plan
- Deposit Base Certification: Obtain certified figures of the deposit base as of the last audited financial year to determine the bank’s tier.
- Product Revamp: Update loan product sheets, marketing materials, and CBS loan origination parameters to reflect the new maximum loan amounts.
- Board Resolution (For >₹1000Cr RCBs): The Asset Liability Management (ALM) committee must propose a new housing loan tenor and moratorium framework to the Board for approval, balancing customer demand with ALM mismatches.
B. Limits on Unsecured Advances
Specific Changes Required:
- Aggregate Limit: Total unsecured advances cannot exceed 15% of total loans and advances.
- Per-Borrower Tiered Ceilings: Similar to housing loans, the maximum unsecured loan (e.g., personal loans without collateral) to a single borrower is tiered by deposit size:
- > ₹1,000 crore deposit size: ₹10 lakh limit
- > ₹100 crore to ₹1,000 crore: ₹7.5 lakh limit
- ≤ ₹100 crore deposit size: ₹5 lakh limit
Real-World Example:
A local CCB with ₹500 Crores in deposits wants to offer personal loans for marriage expenses. Under the new rules, they cannot offer an unsecured personal loan greater than ₹7.5 Lakhs to any single individual. Additionally, if the bank’s total loan portfolio is ₹300 Crores, the absolute maximum amount of all unsecured loans combined cannot exceed ₹45 Crores (15% of ₹300 Cr).
A local CCB with ₹500 Crores in deposits wants to offer personal loans for marriage expenses. Under the new rules, they cannot offer an unsecured personal loan greater than ₹7.5 Lakhs to any single individual. Additionally, if the bank’s total loan portfolio is ₹300 Crores, the absolute maximum amount of all unsecured loans combined cannot exceed ₹45 Crores (15% of ₹300 Cr).
Management Action Plan
- Portfolio Audit: Calculate the current percentage of unsecured loans against total advances. If it exceeds 15%, immediately halt new unsecured sanctions and focus on secured lending to dilute the percentage.
- Credit Parameter Update: Set hard limits in the loan origination system capping unsecured personal/clean loans to the respective ₹10L/₹7.5L/₹5L threshold based on the bank’s deposit tier.
C. Operational Easing (NABARD & Nominal Members)
Specific Changes Required:
- NABARD Prior-Authorisation: The requirement to seek prior authorization from NABARD for certain credit facilities is proposed to be removed, speeding up credit delivery.
- Nominal Member Lending: A new framework is introduced allowing limited secured lending to “nominal members” (members who do not hold voting rights), provided the specific RCB’s bye-laws permit it.
Management Action Plan
- Process Redesign: Update internal credit manuals to remove steps requiring NABARD approval for relevant facilities, thereby reducing the Turn Around Time (TAT) for loan processing.
- Bye-law Review: The legal department must review the bank’s registered bye-laws. If lending to nominal members is desired for business expansion but not currently permitted, initiate the process to amend the bye-laws at the next Annual General Meeting (AGM) ahead of the April 2027 effective date.