RBI relaxed lending norms for tier-II urban co-op banks

The Reserve Bank of India (RBI) announced relaxation in the lending norms for tier-II urban co-operative banks (UCBs), under which it will become easier for them to lend to commercial real estate and non-banking finance firms (NBFCs).

Under the relaxation the central bank has streamlined and reduced the standard asset provisioning requirements for tier-II UCBs from 1 to 2 per cent earlier to 0.40 per cent across sectors. It has also reduced risk weights on lending to various sectors.

But it has not touched the provisioning norm in case of direct advances to agriculture and SME sectors are at 0.25 per cent.

As per the circular issued by the central bank, loans and advances to commercial real estate will now attract a risk weight of 100 per cent which was at 150 per cent.

The banking sector regulator has allowed UCBs to fund only asset-financing NBFCs and the risk weight on exposure to such companies remains unchanged at 100 per cent.

The central bank has not touched even the tier-I UCBs, the general provision norms on all their standard assets which are at 0.25 per cent.

Earlier on November 15, RBI had slashed the standard asset provisioning requirements of banks lending to NBFCs to 0.40 per cent from 2 per cent, leaving the direct advances to agriculture and SME sectors, where the provisioning requirement remains at 0.25 per cent.

Likewise, the central bank has also reduced banks’ risk provisioning for commercial real estate loans to 100 per cent from 150 per cent.