Tough RBI tightens PSL norms for foreign banks

The Reserve Bank of India (RBI) on Monday tightened Priority Sector Lending (PSL) norms for foreign banks by directing them to mandatorily create sub-targets so that they lend a portion of their loans to small and marginal farmers, micro enterprises (MSMEs) from April.

The move is directed at foreign banks which over 20 branches.

The PSL norms mandate foreign banks to eventually lend 40 per cent of their total loan book to priority sectors such as agriculture, rural infra, and MSMEs among others from April 2020.

"A sub-target of eight percent of net bank credit, or credit equivalent amount of off-balance sheet exposure, whichever is higher, shall become applicable for foreign banks with 20 branches and above, for lending to small and marginal farmers and micro enterprises (MSMEs) from FY19," RBI said in a notification.

It further stated another sub-target of 7.50 percent, using the same criterion, will be applicable to these banks from FY19 for lending to micro-enterprises.

But in a partial relief, the Central bank removed the prior condition that only loans of up to Rs. 5 crore and Rs. 10 crore given to MSMEs would be PSL-compliant.

The notification also said all bank loans to MSMEs will now qualify under PSL without credit cap.