“On-lending” means loans sanctioned by banks to eligible intermediaries for onward lending for the creation of priority sector assets.
As per the latest RBI, circular banks are permitted to extend the above facility on an ongoing basis. RBI on Friday (May 13, 2022) announced that “To ensure the 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 ongoing basis”.
Commercial Banks other than SFBs are allowed to extend credit to registered NBFC-MFIs and other MFIs (Societies, Trusts, etc.) which are members of RBI recognised Self- Regulatory organizations (SRO )for the sector, for on-lending to individuals and also to members of SHGs / JLGs.
The Small Finance Banks (SFBs) are allowed to lend to registered NBFC-MFIs and other MFIs (Societies, Trusts, etc.) which are members of RBI recognised ‘Self-Regulatory Organisation’ of the sector, and which have a ‘gross loan portfolio’ (GLP) of up to ₹500 crores as on 31 March 2021, for the purpose of on-lending to individuals. Small Finance Bank credit as above will be permitted up to 10% of the bank’s total priority sector portfolio as of 31 March 2021. The above dispensation was earlier valid up to March 31, 2022.
However, in terms of the latest circular of RBI, banks are permitted to extend the above facility on an ongoing basis. Loans disbursed by banks as above are eligible for categorisation as priority sector advance under respective categories viz., Agriculture, MSME, Social Infrastructure, and Others, provided the MFIs adhere to the conditions prescribed by the banking regulator. In case the ‘gross loan portfolio’ (GLP) of the NBFC-MFIs/other MFIs exceeds the stipulated limit at a later date, the loans disbursed prior to exceeding the GLP limit will continue to be classified under Priority Sector till the date of repayment/maturity whichever is earlier.