Urban Co-operative Banks Credit Risk Management Directions

RBI/DOR/2025-26/280
DOR.CRE.REC.199/07-02-005/2025-26
November 28, 2025
Previous Versions

Reserve Bank of India (Urban Co-operative Banks – Credit Risk Management) Directions, 2025 (Updated as on July 01, 2026)

Table of Contents
Chapter I - Preliminary
Chapter II - Board Approved Policies
Chapter II-A – Credit Risk Evaluation
Chapter III - Statutory Restrictions
Chapter IV - Regulatory Restrictions
Chapter V - Credit Administration
Chapter VI - Legal Entity Identifier (LEI) for Borrowers
Chapter VII - Valuation of Properties - Empanelment of Valuers
Chapter VIII - Filing of Security Interest relating to Immovable (other than equitable mortgage), Movable, and Intangible Assets in CERSAI
Chapter VIIIA - Maintenance of Cash Credit Accounts, Current Accounts and Overdraft Accounts by Banks
Chapter IX - Loan System for Delivery of Bank Credit
Chapter X - Repeal and other provisions

Introduction

Urban Co-operative Banks (UCBs), in the course of financial intermediation, are exposed to various financial and non-financial risks, of which credit risk is the one of the most significant risks. If not managed effectively, credit risk may have ramifications for a range of other risk categories too. As credit exposures of UCBs encompass varied sectors, borrower types and products with their own idiosyncratic complexities as well as systemic implications due to interconnectedness among themselves, credit risk management of UCBs involve a range of prudential tools, including statutory and regulatory restrictions / prohibitions on certain activities. Recognising this, the Reserve Bank has, from time to time, issued guidelines to strengthen credit risk management practices.

Accordingly, in exercise of the powers conferred by Sections 20, 21 and 35A read with Section 56 of the Banking Regulation Act, 1949 and all other provisions / laws enabling the Reserve Bank of India (hereinafter called the Reserve Bank) in this regard, Reserve Bank being satisfied that it is necessary and expedient in the public interest so to do, hereby issues these Directions hereinafter specified.

Chapter I - Preliminary

A. Short title and Commencement

1. These Directions shall be called the Reserve Bank of India (Urban Co-operative Banks – Credit Risk Management) Directions, 2025.

2. These Directions shall come into effect immediately upon issuance.

B. Applicability

3. These Directions shall be applicable to Urban Co-operative Banks (hereinafter collectively referred to as ‘UCBs’ and individually as an ‘UCB’).

In this context, urban co-operative banks shall mean Primary Co-operative Banks as defined under section 5(ccv) read with Section 56 of Banking Regulation Act, 1949.

C. Definitions

4. (1) In these Directions, unless the context otherwise requires,

(i) ‘Bank Guarantee’ shall mean financial and performance guarantees issued by banks on behalf of their clients. A financial guarantee assures payment of money in the event of non-fulfilment of contractual obligations by the client. A performance guarantee provides assurance of compensation if there is delayed or inadequate performance on a contract. A deferred payment guarantee assures payment of instalments due to a supplier of goods.

(ii) ‘Bills Purchased and Discounted’ shall mean negotiable instruments that give the holder the right to receive stated fixed sums on demand or at a fixed or determinable future time. When a bank negotiates a bill payable on demand (sight bill) and provides funds to the holder, at a fee/ interest, the facility is referred to as bill purchase. When a bank negotiates bill payable after a usance i.e., at a fixed or determinable future time (usance bill) and provides funds to the holder, at a discount, the facility is referred to as bill discounting. Bills purchased and discounted can be Inland Bills and Foreign Bills. Inland Bills are Bills of Exchange drawn in India and paid in India to a person in India.

(iii) 'Cash credit' shall mean a facility, under which a customer is allowed an advance up to the credit limit against the security by way of hypothecation / pledge of goods, book debts, standing crops, etc. The facility is a running account and 'Drawing Power - DP' is periodically determined with reference to the value of the eligible current assets. The outstanding amount is repayable on demand.

^1[(iiia) Contract or arrangement’ shall have the same meaning as specified in Section 188(1)(a) to (g) of the Companies Act, 2013.

(iiib) Control’ shall have the same meaning as assigned to it under Section 2(27) of the Companies Act, 2013.]

(iv) ‘Current Account’ shall mean a form of demand deposit account wherefrom withdrawals are allowed any number of times depending upon the balance in the account or up to a particular agreed amount and shall also be deemed to include other deposit accounts which are neither Savings nor Term deposit account.

^2[(iva) ‘Director of a UCB’ shall have the same meaning as defined in Explanation (b) to Section 20 of the Banking Regulation Act 1949 and would include a nominee director, an independent director, and a member of the Board of Management (BoM).

(ivb) ‘Entity’ shall mean a ‘person’ other than an individual and a Hindu Undivided Family.

(ivc) ‘Key Managerial Personnel (KMP)’ of a UCB shall mean all employees one level below the Board and any person designated as such by the Board.

(ivd) ‘Lending’ in the context of a related party shall mean extending funded or / and non-fund-based credit facilities to related parties. While investments in debt instruments of related parties shall be covered for this purpose, equity investments shall be excluded.]

(v) 'Major shareholder' shall mean a person holding 10 per cent or more of the paid-up share capital.

(vi) ‘Overdraft’ shall mean a facility, under which a customer is allowed to draw an agreed sum (credit limit) in excess of credit balance in their account. The overdraft facility may be secured (against fixed / term deposits and other securities, like small saving instruments, surrender value of insurance policies, etc.) or clean (i.e. without any security). The overdraft facility might be granted on their current account, savings deposits account or temporary overdraft on credit accounts.

^3[(via) ‘Person’ shall have the same meaning as assigned to it under Section 3 (23) of Part I of Insolvency and Bankruptcy Code (IBC), 2016.

(vib) ‘Personal Loan’ shall have the same meaning as defined under Banking Statistics (Harmonised Definitions) .

(vic) ‘Promoter’ shall have shall have the same meaning as assigned to it under Section 2(69) of the Companies Act, 2013.

(vid) ‘Reciprocally Related Person’ means an individual who is either (a) a director (excluding independent director/ nominee director appointed by the Government or RBI or a statutory body) of another Co-operative bank or (b) a member of Board of Management of another Co-operative bank or (c) relatives of such directors / BoM members or (d) firms / companies in which such directors / BoM members have interest / substantial interest.

(vie) ‘Related Party’ with respect to a UCB shall mean a related person, a reciprocally related person, or any of the following entities:

(a) where a related person or a reciprocally related person is a partner, manager, KMP, director or a promoter; or

(b) where a related person or a reciprocally related person is a shareholder with more than ten per cent of paid-up equity share capital; or

(c) where a related person or a reciprocally related person is having control, whether singly or jointly with another person; or

(d) where a related person or a reciprocally related person controls more than twenty per cent of voting rights on account of ownership or through a voting agreement or through any other arrangement; or