Money & Banking

RBI ups cap on bank credit to NBFCs

Our Bureau Mumbai | Updated on August 13, 2019

File photo   -  AP

In a bid to boost credit to the needy segment of borrowers, the RBI on Tuesday said bank credit to non-banking financial companies (NBFCs) for on-lending to the agriculture, micro and small enterprises (MSE) and housing categories under priority sector lending (PSL) will be allowed up to a limit of 5 per cent of the individual bank’s total PSL on an ongoing basis. The move is expected to encourage banks to lend to NBFCs, especially housing finance companies (HFCs), which are currently facing a liquidity crunch.

The RBI said its latest instructions will be valid for the current financial year, after which they will be reviewed.

However, loans disbursed under the on-lending model will continue to be classified as PSL till the date of repayment/maturity.

Under the on-lending model, banks can classify only fresh loans sanctioned by NBFCs out of bank borrowings on or after the date of issue of the circular. Loans granted by HFCs under the existing on-lending guidelines will continue to be classified under priority sector by banks.

Bank credit to registered NBFCs (other than MFIs) for on-lending will be eligible for classification as priority sector under the respective categories, subject to conditions. For the ‘term lending’ component of ‘Agriculture’ the limit is ₹10 lakh per borrower. For MSE borrowers, it is ₹20 lakh. The limit for on-lending by HFCs has been doubled to ₹20 lakh per borrower.

Published on August 13, 2019

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