The Reserve Bank of India (RBI) has proposed a significant increase in the home loan limits available through rural cooperative banks, potentially giving homebuyers in rural and semi-urban areas greater access to housing finance.
The proposed changes are part of a draft framework aimed at updating lending limits and easing certain exposure-related restrictions for rural cooperative banks. The RBI has indicated that the existing limits were set several years ago and no longer adequately reflect the substantial increase in property prices and construction costs.
Higher Limits Linked to Bank Deposits
Under the proposed framework, the maximum housing loan a rural cooperative bank can provide to an individual would depend on the size of the bank’s deposits.
Banks with deposits exceeding ₹10,000 crore would be permitted to provide home loans of up to ₹3 crore to an individual borrower.
For banks with deposits between ₹1,000 crore and ₹10,000 crore, the proposed maximum would be ₹2 crore. Banks with deposits ranging from ₹100 crore to ₹1,000 crore could offer loans of up to ₹1.4 crore.
Smaller rural cooperative banks with deposits below ₹100 crore would have a proposed individual housing loan ceiling of ₹60 lakh.
The revised structure represents a substantial increase in the lending capacity available to larger rural cooperative banks compared with the existing framework.
Greater Lending Capacity for Stronger Banks
The draft framework is designed to give financially stronger cooperative banks greater room to support larger housing loans. Lending decisions would continue to take into account factors such as a bank’s capital position, financial strength and risk-management capabilities.
The proposed changes could give rural cooperative banks more flexibility to respond to the changing cost of housing and construction. For borrowers, higher limits could make cooperative banks a more viable source of finance for purchasing or constructing homes.
The move could also strengthen competition in the housing finance market, particularly in rural and semi-urban regions where cooperative banks have an established customer base.
Draft Rules Open for Feedback
The proposed limits are not yet final. The RBI has invited comments and suggestions from banks, cooperative institutions and other stakeholders before introducing the final framework.
The regulator will consider the feedback received before deciding on the final provisions.
If implemented, the revised lending framework could mark an important shift in the role of rural cooperative banks in housing finance, allowing stronger institutions to extend larger loans while keeping lending capacity linked to their financial strength.
