The Reserve Bank of India (RBI) has permitted banks, including small finance banks, to continue providing credit to NBFCs for on-lending to certain priority sectors.
Lending by commercial banks to NBFCs and lending by Small Finance Banks (SFBs) to NBFC-MFIs, for on-lending to certain priority sectors, was permitted up to March 31, 2022.
“To ensure the 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 facility on an ongoing basis,” RBI said in a circular.
Bank credit to NBFCs (including HFCs) for on-lending will be allowed up to an overall limit of 5% of an individual bank’s total priority sector lending in the case of commercial banks. In the case of SFBs, credit to NBFC-MFIs and other MFIs (societies, trusts, etc.) which are members of RBI recognized ‘Self-Regulatory Organisation’ of the sector, will be allowed up to an overall limit of 10% of an individual bank’s total priority sector lending. These limits shall be computed by averaging four quarters of the financial year, to determine adherence to the prescribed cap.
SFBs are allowed to lend to registered NBFC-MFIs and other MFIs which have a gross loan portfolio (GLP) of up to Rs 500 crore as on March 31 of the previous financial year, for on-lending to the 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 before exceeding the GLP limit will continue to be classified by the SFBs as PSL till repayment/maturity, whichever is earlier.
