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RBI Permitted Lending by Commercial Banks to NBFCs & SFBs to NBFC-MFIs for on-lending to Priority Sectors

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banks can provide credit to nbfcs for on-lending to priority sectors

The Reserve Bank of India (RBI) permitted commercial banks to continue providing credit facility to NBFCs (Non-Banking Financial Companies) for the purpose of on-lending to certain priority sectors. The same is applicable for lending by Small Finance Banks (SFBs) to NBFC-MFIs (Microfinance institutions).

  • This facility was earlier allowed till March 31, 2022.
  • To ensure continuation of the synergies that have been developed between banks and NBFCs in delivering credit to the specified priority sectors, it has been decided to allow the above facility on an on-going basis.

Key Points:

i.Bank credit to NBFCs (including Housing Finance Companies-HFCs) for on-lending will be allowed up to an overall limit of 5% of an individual bank’s total Priority Sector Lending (PSL) in case of commercial banks.

ii.In case of SFBs, credit to NBFC-MFIs and other MFIs (Societies, Trusts, etc.) which are members of RBI recognized ‘Self-Regulatory Organisation’ of the sector, will be allowed up to an overall limit of 10% of an individual bank’s total PSL. 

iii.SFBs are allowed to lend to registered NBFC-MFIs and other MFIs which have Gross Loan Portfolio (GLP) of up to Rs 500 crore as on March 31, 2022, for this purpose. 

iv.These limits are computed by averaging across four quarters of the financial year, to determine adherence to the prescribed cap.

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About Reserve Bank of India (RBI):

i.RBI was established on April 1, 1935, in accordance with the provisions of the
RBI Act, 1934.
ii.The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937.
iii.Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India.