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Primary Urban Co-operative Banks must follow updated housing finance guidelines that consolidate existing instructions up to March 31, 2025. This master circular sets individual housing loan limits across bank tiers, regulates floating interest rates and penal charges, and outlines security and lending parameters. Urban Co-operative Banks grant loans to individuals, housing societies, housing boards, and property owners for construction, purchase, and repairs. Banks must comply with single borrower exposure limits, maintain specific real estate sector caps, and avoid upfront disbursements for incomplete projects.
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RBI/2025-26/17 DOR.CRE.REC.No.11/07.10.002/2025-26 April 1, 2025
All Primary (Urban) Co-operative Banks
Madam/Dear Sir,
Master Circular - Housing Finance for UCBs
Please refer to the Master Circular DOR.CRE.REC.No.6/07.10.002/2024-25 dated April 2, 2024 on the captioned subject, consolidating the instructions / guidelines issued to UCBs till April 01, 2024. Attached is the revised Master Circular, updated to reflect all instructions issued upto March 31, 2025 on the above matter, as listed in Annex - 3. It may be noted that this Master Circular only consolidates all instructions on the above matter issued up to March 31, 2025 and does not contain any new instructions/guidelines.
Yours faithfully
(Vaibhav Chaturvedi) Chief General Manager
Encl: as above
Master Circular Housing Finance for UCBs
Contents
1 General 2 Eligible Category of Borrowers 3 Eligibility for Housing Finance 4 Terms and Conditions for Housing Loans 4.1 Maximum Loan Amount and Margin 4.2 Interest rate, foreclosure charges / prepayment penalty and reset of floating interest rate on Equated Monthly Instalments (EMI) based housing loans 4.3 Penal Charges 4.4 Key Facts Statement (KFS) for Loans and Advances 4.5 Security 4.6 Period of Loan 4.7 Graduated Instalments 4.8 Aggregate Limit for Housing Finance 5 Additional / Supplementary Finance 6 Lending to Housing Boards 7 Advances to Builders / Contractors 8 Housing Loans under Priority Sector 9 Precautions 10 National Building Code
1.1 The role of primary (urban) co-operative banks (UCBs) in providing housing finance has been reviewed from time to time. These banks, with their vast network, occupy a very strategic position in the financial system and have an important role to play in providing credit to the housing sector. Further, housing finance to specified categories up to prescribed limits is treated as priority sector lending, and the need for UCBs providing credit to priority sector has come to be increasingly recognised consistent with the social objectives placed before the banking system.
1.2 Therefore, with a view to enabling the UCBs to play a more positive role in providing finance for housing schemes, particularly to the weaker sections of the community, these banks are permitted to grant loans for housing schemes up to certain limits from their own resources subject to the guidelines detailed hereunder.
1.3 Bigger banks that have large surplus resources may undertake larger lending for housing, as this will provide a remunerative avenue for investment of their surplus funds.
1.4 Wherever banks are still required to obtain special permission of the Registrar for financing housing societies, it is suggested that these banks should obtain general permission to finance housing societies subject to such terms and conditions as may be prescribed for the purpose.
UCBs may grant loans to the following categories of borrowers:
The borrowers in the above categories will be eligible for finance for the following purposes:
Finance provided by the UCBs to the eligible categories of borrowers shall be subject to the following terms and conditions:
(i) 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.
(ii) Housing loans to individuals shall be subject to the following ceilings.
| UCB Tier | Loan amount* per dwelling unit |
|---|---|
| Tier 1 | ₹60 lakh |
| Tier 2 | ₹1.40 crore |
| Tier 3 | ₹2 crore |
| Tier 4 | ₹3 crore |
*subject to extant single borrower exposure limits
(iii) 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.
Banks 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 para 4.1 of the Master Circular on Management of Advances – UCBs dated April 1, 2025, as amended from time to time.
With effect from June 26, 2012 it has been decided that UCBs will not be permitted to charge foreclosure charges / prepayment penalties in home loans extended on floating interest rate basis.
At the time of sanction of EMI based floating rate housing loans, UCBs are required to 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 are advised to 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 circular DOR.MCS.REC.32/01.01.003/2023-24 dated August 18, 2023. A set of frequently asked questions (FAQs) providing clarifications related to implementation of the circular has been uploaded in the FAQs section of the RBI website.
4.3.1 Penalty, if charged, for non-compliance of material terms and conditions of loan contract by the borrower shall be treated as ‘penal charges’ and shall not be levied in the form of ‘penal interest’ that is added to the rate of interest charged on the advances. Levy of such penal charges shall be governed in terms of the circular DoR.MCS.REC.28/01.01.001/2023-24 dated August 18, 2023 on ‘Fair Lending Practice - Penal Charges in Loan Accounts’.
4.3.2 A set of frequently asked questions (FAQs) providing clarifications related to implementation of the guidelines on penal charges has been uploaded in the FAQs section of the RBI website.
UCBs shall comply with the instructions contained in the circular DOR.STR.REC.13/13.03.00/2024-25 on ‘Key Facts Statement (KFS) for Loans & Advances’ dated April 15, 2024, as amended from time to time.
4.5.1 UCBs may secure housing loans either
4.5.2 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.
