RBI opens bank credit to NBFCs for continuous on-lending to priority sector

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The Reserve Bank of India (RBI) on Friday decided to allow banks to lend to NBFCs for on-lending to priority sectors on a rolling basis to ensure continuation of the synergies that have been developed between banks and NBFCs in the provision of credit to specified priority sectors. The same goes for small financial banks that on-lend to MFIs-NBFCs. This installation was previously authorized until March 31, 2022.

Now, bank credit to NBFCs, including Housing Finance Companies (HFCs), for on-lending to priority sectors will be permitted up to an aggregate limit of 5% of an individual bank’s total priority sector lending. Similarly, small financial banks that on-lend to NBFC-MFIs and other MFIs, which are recognized by the RBI, will be permitted up to an aggregate limit of 10% of an individual bank’s total priority sector lending. .

“These limits will be calculated by averaging over four quarters of the financial year, to determine compliance with the prescribed cap, the RBI said.

In addition, the RBI said, smaller financial banks will be allowed to lend to registered NBFC MFIs and other MFIs that have a gross loan portfolio of up to Rs 500 crore as of March 31 of the previous financial year. “In the event that the gross loan portfolio of 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 Financial Banks (SFBs) as priority sector loans until repayment/maturity, whichever comes first,” the RBI said.


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