Please restore priority sector status, NBFC body tells RBI

Saikat Das
Moneycontrol.com

Finance industry development council (FIDC), the self-regulated body of non-banking finance companies, has petitioned the Reserve Bank of India seeking restoration of the priority sector tag for bank loans to NBFCs.

So far, FIDC representatives have met RBI officials three-four times after writing a formal letter to the RBI governor D Subbarao. Moneycontrol.com is in possession of a copy of the letter.

In the three-page letter dated June 2, 2011, FIDC chairman, TT Srinivasaraghavan wrote: "The step taken by RBI in its annual monetary policy disallowing banks from classifying loans given to NBFCs as priority sector loans would significantly curtail credit flow to the priority sector which would in turn curtail growth."

RBI removed the priority sector tag in May after bank loans to NBFCs grew 55% in FY11, even as overall credit growth in the economy was 20%. Under priority sector loans, borrowers (read NBFCs) get 1-2% discount on market rates. It is popularly known as interest rate subvention.

RBI