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Bank credit to registered NBFCs for on-lending to be treated as priority sector lending: RBI
Aug-14-2019

In a bid to boost credit to the needy segment of borrowers, Reserve Bank of India (RBI) said that bank credit to registered NBFCs (other than MFIs) for on-lending to agriculture, micro and small enterprises (MSEs) and housing sector up to prescribed limits will be classified as priority sector lending.

According to the revised norms, on-lending by NBFCs for ‘term lending’ component under agriculture will be allowed up to Rs 10 lakh per borrower. For MSE borrowers, the limit will be Rs 20 lakh per borrower. In case of housing sector, the limit has been enhanced from Rs 10 lakh to Rs 20 lakh per borrower for classification of the loan as priority sector lending. Under the revised on-lending model, banks can classify only the fresh loans sanctioned by NBFCs out of bank borrowing. However, loans granted by housing finance companies (HFCs) under the existing on-lending guidelines will continue to be classified under priority sector by banks.

The RBI also clarified that bank credit to NBFCs for on-lending will be allowed up to a limit of five percent of individual bank’s total priority sector lending on an ongoing basis. Further, these norms will be reviewed after March 31, 2020. Under the priority sector norms, banks are mandated to lend a particular portion of their funds to specified sectors, such as agriculture, education, export, MSME and social infrastructure.

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