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RBI allows banks to lend to NBFCs for priority sector loans on an on-going basis

The central bank has allowed small finance banks (SFB) to tag loans to microfinance institutions (MFIs) as PSL loans as well.

May 13, 2022 / 09:19 PM IST

The Reserve Bank of India on May 13 said lending by scheduled commercial banks (SCBs) to non-banking finance companies (NBFCs) for the purpose of on-lending to priority sector loan (PSL) segments will be allowed on an on-going basis, as against the earlier deadline of March 31.

The central bank has allowed small finance banks (SFB) to tag loans to microfinance institutions (MFIs) as PSL loans on an on-going basis as well.

“To ensure continuation of the synergies that have been developed between banks and NBFCs in delivering credit to the specified priority sectors, it has been decided to allow the above facility on an on-going basis,” the RBI said in a statement.

Priority sector lending refers to mandatory lending by banks to economically weaker sections. Commercial banks have to lend at least 40 percent of their loan to PSL category while SFBs are required to extend 75 percent of its Adjusted Net Bank Credit (ANBC) to the sectors eligible for classification as PSL by the Reserve Bank. Failure to meet this lending will attract penal charges.

Out of the total 40 percent of their PSL target, banks will be allowed to fill 5 percent of their PSL target through this route, as per the RBI circular. SFBs, on the other hand, will be allowed to generate up to 10 percent of their PSL target through on-lending to MFIs.

“These limits shall be computed by averaging across four quarters of the financial year, to determine adherence to the prescribed cap,” the RBI said.

“SFBs are allowed to lend to registered NBFC-MFIs and other MFIs which have a ‘gross loan portfolio’ (GLP) of up to ₹500 crore as on March 31 of the previous financial year, for the purpose of on-lending to priority sector. In case the GLP of the NBFC-MFIs/other MFIs exceeds the stipulated limit at a later date, all priority sector loans created prior to exceeding the GLP limit will continue to be classified by the SFBs as PSL till repayment/maturity, whichever is earlier,” it added.

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Moneycontrol News
first published: May 13, 2022 09:19 pm
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