'Banks can continue credit to NBFCs for on-lending to priority sectors'

Mumbai: Reserve Bank of India (RBI) on Friday permitted banks, including small finance banks, to continue providing credit facility to NBFCs for the purpose of on-lending to certain priority sectors.

The facility of lending by commercial banks to NBFCs and lending by Small Finance Banks (SFBs) to NBFC-MFIs, for the purpose of on-lending to certain priority sectors, was available 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... facility on an on-going basis," RBI said in a circular.

Bank credit to NBFCs, including HFCs, for on-lending will be allowed up to an overall limit of 5 per cent of an individual bank's total priority sector lending in the case of commercial banks.

In the case of SFBs, credit to NBFC-MFIs (Non-Banking Financial Company - Micro Finance Institutions) and other MFIs (Societies, Trusts, etc) which are members of RBI recognised 'Self-Regulatory Organisation' of the sector, will be allowed up to an overall limit of 10 per cent of an individual bank's total priority sector lending.

These limits will be computed by averaging across four quarters of the financial year, to determine adherence to the prescribed cap, the circular said.

According to the circular, SFBs are allowed to lend to registered NBFC-MFIs and other MFIs which have a Gross Loan Portfolio (GLP) of up to Rs 500 crore as on March 31 of the previous financial year, for the purpose of on-lending to priority sectors.