Bank Credit to NBFCs for On-Lending Eligible for Classification as ‘Priority Sector’

RBI by way of its circular dated August 13, 2019 addressed to all scheduled commercial banks has decided that bank credit to registered NBFC (other than micro finance institutions (‘MFI’)) for on-lending will be eligible for classification as ‘priority sector’ subject to the following conditions:

i.       Agriculture: On-lending by NBFCs for term lending component under ‘agriculture’ will be allowed up to Rs 10,00,000 per borrower;

ii.      Micro & Small enterprises (‘MSME’): On-lending by NBFCs under ‘MSME’ will be allowed up to Rs 20,00,000 per borrower; and

iii.     Housing: The existing limit for on-lending by housing finance companies (‘HFCs’) is increased to Rs 20,00,000 per borrower.

Only fresh loans sanctioned by NBFCs out of bank borrowings, on or after the date of issue of the circular, are eligible for the aforementioned classification by banks. Loans given by HFCs under the existing on-lending guidelines will continue to be classified under ‘priority sector’ by banks.

Bank credit to NBFCs for on-lending will be allowed up to a limit of five percent of each bank’s total priority sector lending on an ongoing basis. The circular will have immediate effect and above instructions will be reviewed after March 31, 2020. However, loans disbursed under the on-lending model will continue to be classified under ‘priority sector’ till the date of repayment/maturity.

Published In:Inter Alia - Quarterly Edition - September 2019 [ English
Date: September 30, 2019