The Finance Industry Development Council has requested the Reserve Bank of India to extend the dispensation of bank lending to registered NBFCs (other than MFIs) for on-lending to be eligible for classification as priority sector by another year.

The dispensation expired at the end of March this year.

“Renewal of the dispensation will provide much desired boost to credit to the needy segment of borrowers as NBFCs form the last mile link in delivery of credit to small and medium businesses for financing of equipment, business expansion, working capital and for similar business purposes,” said FIDC in a letter to RBI Governor Shaktikanta Das.

FIDC is a representative body of assets and loan financing NBFCs.

“We urge RBI to consider extending the above dispensation of the bank loans to NBFCs for on-lending to the agriculture and MSME sectors, to be reckoned as a part of priority sector lending, as hitherto, for a further period till March 2023,” FIDC said.

It 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. Further, extension of the dispensation will allow access to credit at cheaper rates for under-banked borrowers.

Micro and small enterprises and housing (with an increased limit) was permitted to be classified as priority sector lending up to certain limits in August 2019 by the RBI. This was then extended in April 2021 and was valid up to September 30, 2021. Then in October 2021, the RBI further extended the facility till March 31, 2022. It had attributed the decision to the increased traction in delivering credit to the underserved and unserved segments of the economy,