Priority quota relief for banks, NBFCs

Credit Delivery

 The central bank has allowed all new loans granted by banks to NBFCs for on-lending to small scale industries (SSI) sector to be classified under priority sector lending.

 It has also cut interest rate on deposits by foreign banks (by 75 basis points) in the Small Industries Development Bank of India (Sidbi) to 6 per cent from 6.75 per cent earlier.

 Banks, especially the new private sector ones, have been hard pressed to fulfill the 40 per cent priority sector lending target. NBFCs have also in recent times found it a problem to get loans from banks.

 The apex bank, earlier in its credit policies in April 1999 and 2000, had said that bank loans to NBFCs for on-lending to agriculture, tiny sector and small road and water transport operators, will be reckoned under priority sector lending.

 Foreign banks are required to deposit an amount equivalent to the shortfall in their priority sector target with Sidbi.

 The apex bank has now said that the interest rate on the deposits of foreign banks placed with Sidbi towards their priority sector shortfall will be at the bank rate as against 6.75 per cent earlier.

 According to StanChart chief executive officer Chris Low, StanChart does not rely entirely on Sidbi. The bank also does direct lending.