RBI opens banks credit for NBFCs to on-lend continuously to priority sector

Bank credit to NBFCs, including HFCs, will be allowed up to an overall limit of 5% of an individual banks total priority sector lending

The Reserve Bank of India (RBI) on Friday decided to allow banks to lend to NBFCs for on-lending to priority sectors on an on-going basis to ensure continuation of the synergies that have been developed between banks and NBFCs in delivering credit to the specified priority sectors. The same holds true for small finance banks who are on-lending to NBFC-MFIs. This facility was earlier allowed till March 31, 2022.

Now, bank credit to NBFCs, including housing finance companies (HFCs), for on-lending to priority sectors will be allowed upto an overall limit of 5 per cent of an individual banks total priority sector lending. Similarly, small finance banks for on-lending to NBFC-MFIs and other MFIs, which are RBI recognised, will be allowed up to an overall limit of 10 per cent of an individual bank’s total priority sector lending.

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

Further, the RBI said, small finance banks will be allowed to lend to registered NBFC-MFIs and other MFIs who have a gross loan portfolio of upto Rs 500 crore as of March 31 of the previous financial year. “In case the gross loan portfolio of the NBFC-MFIs/other MFIs exceeds the stipulated limit at a later date, all priority sector loans created prior to exceeding the gross loan portfolio limit will continue to be classified by the small finance banks (SFBs) as priority sector lending till repayment/maturity, whichever is earlier,” the RBI said.