Lending to NBFCs for on-lending to be classified as Priority sector up to a cap

Today (Monday, March 23, 2020), RBI advised commercial banks that their loans to registered NBFCs (other than MFIs) for on-lending to be eligible for classification as priority sector is extended for FY 2020-21. The circular further said that existing loans disbursed under the on-lending model will continue to be classified under the Priority Sector till the date of repayment/maturity.

The loans to registered NBFCs for on-lending purpose is restricted up to an overall limit of five percent of individual bank’s total priority sector lending

Bank credit to registered NBFCs (other than MFIs) and HFCs for on-lending will be allowed up to an overall limit of five percent of individual bank’s total priority sector lending. The computation for the above purpose of classifying as priority sector advance is done on averaging across four quarters of credit under the prescribed category and cap.

The following categories of advances are classified as priority sector advance within the overall limit of five percent of individual bank’s total priority sector lending.

On-lending by NBFCs for the ‘Term lending’ component under Agriculture will be allowed up to ₹ 10 lakh per borrower is classified as priority sector advance.

Micro & Small enterprises: On-lending by NBFC will be allowed up to ₹ 20 lakh per borrower is classified as priority sector advance.

Housing: On-lending by HFCs will be allowed up to ₹ 20 lakh per borrower is classified as priority sector advance.