Banks can provide credit to NBFCs for on-lending to priority sectors on an ongoing basis: RBI

The Reserve Bank of India on Friday said that banks can provide credit to non-banking finance companies for on-lending to certain priority sectors on an ongoing basis.

The facility of lending by commercial banks to NBFCs and lending by small finance banks (SFBs) to NBFC-MFIs, for the purpose of on-lending to certain priority sectors, was permitted up to March 31, 2022.

“To ensure 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 above facility on an on-going basis,” the RBI said.

Bank credit to NBFCs (including housing finance companies) for on-lending will be allowed up to an overall limit of five per cent of an individual bank’s total priority sector lending in case of commercial banks.

In case of SFBs, credit to NBFC-MFIs and other MFIs which are members of RBI recognised ‘self-regulatory organisation’ of the sector, 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 further said.

SFBs are allowed to lend to registered NBFC-MFIs and other MFIs that have a ‘gross loan portfolio’ (GLP) of up to ₹500 crore as on March 31 of the previous financial year, for the purpose of on-lending to priority sector.

The Finance Industry Development Council, which is the representative body of assets and loan financing NBFCs, had recently also requested the RBI to extend the facility for another one year until March 2023.

It had noted that end borrowers of NBFCs continue to be those who face challenges in accessing formal credit and for whom NBFCs have devised credible ways to service. 

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