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Banks can continue to provide credit to Nbfcs for lending to priority sectors

The Reserve Bank of India (RBI) on Friday allowed banks, including smaller financial banks, to continue extending credit facilities to non-bank financial corporations (NBFCs) with the aim of on-lending to certain priority sectors. The commercial bank lending facility to NBFCs and the small financial bank (SFB) lending facility to NBFC-MFIs, for on-lending to certain priority sectors, was available until March 31, 2022.

“To ensure the continuation of the synergies that have been developed between banks and NBFCs in extending credit to the specified priority sectors, it has been decided to authorize the… facility on a continuing basis,” RBI said in a circular. . Bank credit to NBFCs, including HFCs, for on-lending will be permitted up to an aggregate limit of 5% of an individual bank’s total priority sector lending in the case of commercial banks.

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In the case of SFBs, credit to NBFC-MFIs (Non-Banking Financial Company – Micro Finance Institutions) and other MFIs (companies, trusts, etc.) authorized up to an overall limit of 10% of total loans to the sectors priorities of an individual bank. These limits will be calculated by averaging over four quarters of the financial year, in order to determine compliance with the prescribed ceiling, the circular indicates.

According to the circular, SFBs are allowed to lend to registered NBFC-MFIs and other MFIs that have a gross loan portfolio (GLP) of up to Rs 500 crore as of March 31 of the previous financial year, for on-lending purposes. . to priority sectors.

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