🟡 DRAFT DIRECTIONS — NOT YET IN FORCE
Issued by the Reserve Bank of India, Department of Regulation, on August 06, 2026 (Press Release 2026-2027/828), for stakeholder consultation. Two draft Directions are covered here — both are proposals, not final rules. Comments are invited until August 28, 2026; if finalised as drafted, both would take effect from April 1, 2027.
Quick Reference
Introduction
A day after flagging it in its Statement on Developmental and Regulatory Policies, RBI has followed through with the substance: two draft Directions that materially rework how Rural Co-operative Banks (RCBs) manage concentration risk and structure key credit facilities. This isn't a minor housekeeping update — it touches exposure ceilings, real estate lending limits, unsecured advance caps, housing loan tenor rules, and even introduces a new category of "nominal member" lending.
RBI frames the review as aligning RCB regulation more closely with norms already applicable to other regulated entities, against the backdrop of ongoing evolution in RCB activities. Concentration norms for RCBs have so far sat under Credit Monitoring Arrangement (CMA) instructions and other regulatory guidance issued from time to time, most recently reflected in the 2025 Directions being replaced here.
Two separate draft Directions are covered in this article — the Concentration Risk Management Directions, 2026 (a full replacement of the 2025 version) and the Credit Facilities – Amendment Directions, 2026 (targeted amendments to the 2025 Credit Facilities Directions) — both open for comment until August 28, 2026.
💡 Related coverage: This follows RBI's separate draft guidelines reopening 'on tap' licensing for Urban Co-operative Banks, also flagged in the same August 5, 2026 policy statement. Read our full breakdown: RBI Draft Guidelines for 'On Tap' Licensing of Urban Co-operative Banks 2026.
Part A: Draft RCB Concentration Risk Management Directions, 2026
Introduction & Applicability
RBI notes that concentration of a bank's exposures to counterparties and sectors poses significant risk to the bank and its depositors. RCB concentration norms currently sit under Credit Monitoring Arrangement (CMA) instructions and other regulatory instructions; this draft consolidates and revises them, issued under Sections 21 and 35A read with Section 56 of the Banking Regulation Act, 1949. The Directions apply to RCBs — defined as State Co-operative Banks and Central Co-operative Banks per the NABARD Act, 1981 — and are proposed to commence on April 1, 2027.
Key Definitions
📝 The draft introduces or codifies several defined terms: CRE-RH loans (loans to builders/developers for residential housing, permitting up to 10% commercial space within an integrated project); Credit Exposure (higher of sanctioned limit or outstanding, including refinance-funded loans); Exposure (credit exposure + investment exposure); Group of counterparties (based on common ownership/control, shared partners, business dependency, or common guarantors); Investment Exposure (non-SLR securities); Real Estate Sector Exposure (housing loans, repair/addition loans, CRE-RH loans, scheme loans, and real estate investment exposure); Tier-I Capital (per the RCB Capital Adequacy Directions, 2025); and a four-part definition of Unsecured Advances, covering clean overdrafts, personal-guarantee loans, and specified exceptions for salaried-employee and receivables-backed advances.
Exposure Limits
💡 Sectoral limits, other than real estate, move from RBI-prescribed to self-determined. Beyond the specific caps above, RCBs will no longer follow RBI-prescribed limits for individual sectors — instead, each RCB must itself identify the sectors it lends to and fix its own internal sectoral exposure limits via Board-approved policy. Real estate sector exposure remains the one sector still subject to an RBI-prescribed aggregate cap (see below).
✅ Exemptions carved out: food credit consortium exposures and loans secured against an RCB's own term deposits are excluded from single/group counterparty limits. Real estate exposure funded via a higher financing agency or NHB refinance, and staff housing loans covered by superannuation and mortgage, are excluded from the real estate cap. Central co-operative banks' deposits with their state co-operative bank are excluded from the inter-bank deposit cap.
⚠️ Transition for existing breaches: Exposures already exceeding the new limits as on April 1, 2027 won't need to be unwound immediately — no fresh limits may be sanctioned to such borrowers, but existing term loans/non-fund facilities can run off to maturity, and cash credit/revolving facilities may continue while being rationalised within three years.
Governance and Repeal
RCBs must adopt a comprehensive Board-approved policy covering counterparty exposure limits, how a "group of counterparties" is defined, and sector-specific exposure limits. Real estate exposure is treated as a special case given RCBs' primary rural/agricultural lending mandate — RCBs are directed to desist from real estate exposure beyond what the Directions specifically permit. On commencement, the RBI (RCB – Concentration Risk Management) Directions, 2025 stand repealed, with savings provisions protecting rights, penalties, and ongoing proceedings under the repealed Directions. RBI retains final and binding authority to interpret the Directions.
Part B: Draft RCB Credit Facilities – Amendment Directions, 2026
This draft amends specific provisions of the RBI (RCB – Credit Facilities) Directions, 2025, issued under the same statutory powers (Sections 21 & 35A read with Section 56, Banking Regulation Act, 1949). Proposed effective date: April 1, 2027.
New Definition: Nominal Member
📝 A new definition is inserted in Chapter I: a nominal member includes a co-parcener, a person standing surety for a borrowing member, or someone availing permitted credit facilities occasionally for up to three years. Nominal members pay a non-refundable entrance fee, must reside or work within the bank's area of operation, and are not entitled to share certificates, audited accounts, annual reports, dividends, or voting/attendance rights at General or Special General Meetings.
Housing Loan Norms (Chapter VI) — Tenor, Moratorium and Ceilings
Section D of the housing loan chapter is renamed "Tenor of and moratorium on Housing Loan" and substantially rewritten:
- RCBs with deposits up to ₹1,000 crore: housing loan tenor capped at 20 years including moratorium; moratorium allowed only up to construction completion, capped at 24 months from first disbursement.
- RCBs with deposits above ₹1,000 crore: free to determine tenor and moratorium as per their own Board-approved policy.
- Moratorium is permitted only for under-construction houses — not for loans to acquire completed houses.
- Credit policies must factor in borrower life expectancy and the longer duration of housing exposures when setting risk and pricing strategy, and instalments must be fixed realistically based on repayment capacity.
❌ Section E "Graduated Instalments" and the corresponding paragraph are proposed to be deleted entirely.
A revised provision on repair/addition loans (para 67) allows need-based credit for repairs, additions, and alterations to owner- or tenant-occupied houses/flats, subject to appropriate security and engineer/architect cost certification, capped at 10% of the applicable housing loan limit.
A minor drafting change also strikes the words "Act and the rules framed thereunder" from paragraph 71 of the housing loan chapter.
Revised Housing Loan Ceilings (Para 73)
A further 10% ceiling applies for repair/addition/alteration loans, drawn from within these limits.
Chapter VIII Changes — NABARD Authorisation, Unsecured Advances, Nominal Members
❌ Section E "Prior authorisation from NABARD" (paragraph 118) and the associated Annex III are proposed to be deleted — removing the requirement for RCBs to seek prior NABARD authorisation for the relevant credit facilities.
✅ New: Lending to nominal members (para 121B). An RCB may lend to nominal members only if its bye-laws (consistent with the applicable Co-operative Societies Act) contain an enabling provision. Where permitted, loans may be granted against deposits, gold/silver ornaments, life insurance policies, and government securities, within a Board-approved monetary ceiling.
2025 Framework vs. 2026 Draft — At a Glance
Compliance Checklist
☑ Map current exposures against the new 20%/25%/30% Tier-I capital thresholds to identify any counterparties that would breach the proposed limits.
☑ Review real estate and unsecured advance books against the proposed 15% aggregate caps and the 5% real-estate sub-cap.
☑ Recalculate housing loan sanctioning limits against the new deposit-size-tiered ceilings (₹60 lakh to ₹3 crore).
☑ Update Board-approved policies on counterparty grouping, sectoral limits, and (for larger RCBs) housing loan tenor/moratorium terms.
☑ Assess bye-law readiness for the new nominal-member lending provision before relying on it.
☑ Flag transition-period exposures that would breach the new limits as on April 1, 2027, and plan run-off/rationalisation accordingly.
☑ Submit comments, if relevant, by August 28, 2026 via 'Connect 2 Regulate' or email.
CorpLawUpdates Analysis
The most consequential design choice in these drafts is the deposit-size tiering that now runs through both Directions — housing loan ceilings, unsecured advance limits, and tenor/moratorium flexibility all scale with an RCB's deposit base. This is a meaningful departure from a one-size-fits-all approach and effectively creates a de facto proportionality regime within the RCB category itself, even though RCBs aren't formally segmented into tiers the way UCBs are under existing norms.
Removing the NABARD prior-authorisation requirement is a genuine operational simplification, but it shifts more of the underwriting judgment (and downstream supervisory risk) onto the RCB's own Board and RBI's post-facto exposure limits. Compliance teams should read this alongside the new Board-policy obligations in the Concentration Risk Management Directions — RBI appears to be trading a pre-approval checkpoint for a more robust internal-governance-plus-numeric-limits framework.
The real estate exposure carve-outs deserve close attention. RCBs are explicitly told to desist from real estate exposure beyond what's permitted, given their primary agricultural/rural mandate — a reminder that this sector is being treated as a structural risk concentration point specifically for co-operative banks, distinct from how real estate exposure might be treated for commercial banks or UCBs.
Practically, the three-year transition window for exposures already in breach as on April 1, 2027 is a sensible cushion, but RCBs with concentrated legacy books — particularly in real estate or with large single-counterparty exposures — should start modelling their compliance runway now rather than waiting for the Directions to be finalised. Given the relatively short August 28, 2026 comment window, RCBs with concerns about the deposit-tier thresholds or the housing loan ceiling amounts should submit feedback promptly.
Source Documents: Press Release 2026-2027/828; Draft RBI (RCB – Concentration Risk Management) Directions, 2026; Draft RBI (RCB – Credit Facilities) – Amendment Directions, 2026
Issuing Authority: Reserve Bank of India — Department of Regulation
Date Issued: August 06, 2026
Signatory (Drafts): Dr. Sudarsana Sahoo, Chief General Manager
Comment Deadline: August 28, 2026
This article is for informational and educational purposes only and does not constitute legal or regulatory advice. Verify with primary regulatory sources before acting.
