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RBI has extended PSL by Banks to NBFCs up to September 30, 2021

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Banks allowed priority sector lending to NBFCs for another 6On April 7, 2021, the Reserve Bank of India(RBI) extended the classified lending of Banks to NBFCs for on-lending under the Priority Sector Lending (PSL) for 6 months i.e. up to September 30, 2021.

Background: 

  • To boost credit among small and needy borrowers, on August 13, 2019 RBI allowed banks to classify their lending to registered NBFCs (other than MFIs) as PSL which was about 5% of a bank’s total PSL (for on-lending to Agriculture/MSME/Housing) till March 31, 2020, and later the facility was extended up to March 31, 2021.
  • Around 37,000 crore has been lent by banks to NBFCs for on-lending to the specified Priority Sector (PS) by December 2020.

Objective: To ensure continued availability of credit to PS and to aid faster economic recovery

About Priority Sector(PS): 

  • The Government of India and RBI has considered specific sectors in India as important for the development of the basic needs of the country and given priority to them over other sectors i.e. PS
  • RBI has mandated all scheduled commercial banks and foreign banks to set aside 40% of their Adjusted Net Bank Credit (ANDC) for lending to these sectors.
  • Regional rural banks, co-operative banks and small finance banks have to allocate 75% of ANDC to PSL.

Categories under priority sector:

  • Agriculture
  • Micro and Small Enterprises
  • Education
  • Housing
  • Export Credit & others

RBI has increased the PSL loan limits for lending against NWRs /eNWRs to Rs 75 lakh

On April 7, 2021, RBI has enhanced the loan limits under Priority Sector Lending(PSL) for banks’ lending against Negotiable Warehouse Receipts (NWRs) / electronic Negotiable Warehouse Receipts (eNWRs) from ₹50 lakhs to 75 lakhs per borrower.

Objective: To encouraging farm credit to individual farmers against pledge/ hypothecation of agricultural produce

Credit limit:

  • RBI has increased the credit limit under PSL to ₹75 lakhs for pledge/hypothecation of agricultural produce (within 12 months) with NWRs/eNWRs.
  • For other warehouse receipts (other than NWRs/eNWRs) the loan limit will continue to be ₹50 lakhs.

About Negotiable warehouse receipt(NWR):

  • It was launched in 2011, which allows the farmers to transfer ownership of commodity stored in a warehouse without having to deliver the physical commodity.
  • In 2017 the negotiable warehousing receipts were introduced in electronic format (eNWR)
  • NWRs/e-NWRs will be issued by warehouses registered with the Warehousing Development and Regulatory Authority (WDRA).
  • Warehouse receipts are made negotiable under the Warehouse (Development and Regulation) Act, 2007, and regulated by WDRA

Recent Related News:

On September 25, 2020, HDFC Bank launched India’s first Warehouse Commodity Finance App. The app will help customers to draw down and manage the loan against the pledge of commodities online and will benefit enormously the agri processors, traders and farmers who are primary beneficiaries of WHR loans (Warehouse Receipt Loans).

On November 5, 2020, RBI has revised the loan scheme of the Co-Origination Model between Banks and Non-Banking Financial Companies – Non-Deposit taking – Systemically Important (NBFC-ND-SIs) launched in September 2018 with the improved” Co-Lending Model (CLM) “. CLM helps banks to provide loans along with NBFCs for priority sector borrowers based on a prior agreement.