Loans from commercial banks to NBFCs and from small financial banks (SFBs) to NBFC-MFIs, for on-lending to priority sectors

On 13 May 2022, the RBI decided, to ensure continuation of the synergies that have been developed between banks and NBFCs in extending credit to specified priority sectors, to authorize the facility in which commercial bank lending to NBFC and Small Financial Bank (SFB) lending to NBFC-MFIs, for on-lending to certain priority sectors, to continue on an ongoing basis. This facility was previously permitted through March 31, 2022. 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. In the case of SFBs, credit to NBFC-MFIs and other MFIs (companies, trusts, etc.) that are members of the “self-regulatory body” recognized by the sector’s RBI, will be permitted up to a limit aggregate of 10% of a total of loans to the priority sector of each bank. These limits are calculated by taking the average over four quarters of the financial year, in order to determine compliance with the prescribed ceiling. SFBs are permitted to lend to registered NBFC-MFIs and other MFIs that have a “Gross Loan Portfolio” (“GLP”) of up to ₹500 crore as of March 31 of the previous fiscal year, for the purpose of on-lending to the priority sector. In the event that the GLP of NBFC-MFIs/Other MFIs exceeds the stipulated limit at a later date, all priority sector loans originated prior to exceeding the GLP limit will continue to be classified by SFBs as PSLs until repayment. /deadline, whichever comes first. .

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