RBI Raises Limit for Housing Loan For Cooperative Banks and Credit to Commercial Real Estate

The Reserve Bank of India (RBI) raised the limits for individual housing loans issued by urban cooperative banks (UCBs) and rural cooperative banks (RCBs) by more than 100% and announces measures to improve credit in Commercial Real Estate – Residential Housing (CRE-RH) on Wednesday. RBI Governor Shaktikanta Das announced the decision, claiming that it will help the housing industry receive more credit.

These limits were last revised for UCBs in 2011 and for RCBs in 2009, respectively, after an 11-year gap. According to the RBI’s announcement today, the previous limit for Tier-I UCBs was Rs.30 lakh, but it has now been raised to Rs.60 lakh. In the same way, the cap for Tier-II UCBs has been raised from Rs.70 lakh to Rs.1.4 crore.

“The RBI has clearly highlighted the crucial role cooperative banks may play in generating higher credit flows into the housing industry while encouraging financial inclusion,” said Ramesh Nair, CEO (India) and MD (market development-Asia) of Colliers.

He also stated that the central bank has increased the maximum amount that urban and rural cooperative banks can lend to homebuyers by more than 100%. “This will increase lending availability, particularly in semi-urban and rural areas where cooperative banks have a stronger presence.”

Within the present aggregate housing finance restriction of 5% of total assets, the RBI has recommended allowing RCBs (including state cooperative banks and district central cooperative banks) to lend loans to ‘commercial real estate–residential housing.’ “The measure is in accordance with the exemptions provided to scheduled commercial banks (SCBs) and unregulated commercial banks (UCBs).” “This step would increase loan flows from cooperative banks to the housing industry,” Das stated when the decision was announced.

For RCBs, the increase in restrictions is significantly greater. The cap for rural co-operative banks has been raised from Rs.20 lakh to Rs.50 lakh for those with a net worth of less than Rs 100 crore, and from Rs 30 lakh to Rs 75 lakh for those with a net worth of more than Rs.100 crore.

“In tier II and tier III cities, this will open up a tremendous finance opportunity.” Developers can now borrow money from cooperative banks to finance housing developments. This is projected to boost affordable housing initiatives in these cities and tap into high latent demand, Colliers’ Nair also stated.

The RBI also agreed to allow UCBs to offer their consumers doorstep banking services. “UCBs will also be allowed to provide doorstep banking services to their consumers.” “This will allow UCBs to satisfy the requirements of their clients, particularly senior persons and people with disabilities,” Das said.

“To realise their potential in providing credit facilities to the housing sector, it has been decided to allow StCBs and DCCBs to extend finance to Commercial Real Estate – Residential Housing (CRE-RH) within the existing aggregate housing finance limit of 5% of their total assets,” according to the RBI statement.

Housing possibilities in the residential segment will increase in rural locations as commercial developers get access to new avenues.

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