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The Reserve Bank of India (RBI) has decided to extend priority sector classification for bank loans to non-banking finance companies (NBFCs) for on-lending for FY 2020-21.
As per the August 2019 circular, bank credit to registered NBFCs (other than microfinance institutions) for on-lending was eligible for classification as priority sector up to March 31, 2020.
A bank can classify fresh loans sanctioned by NBFCs to the priority sector -- agriculture, micro & small enterprises (MSEs) and housing -- out of bank borrowings.
In its latest circular, the RBI also 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.
Bank credit to registered NBFCs (other than MFIs) for on-lending is classified as priority sector under respective categories subject to conditions -- on-lending by NBFCs for the ‘term lending’ component under agriculture is allowed up to ₹10 lakh per borrower; on-lending to micro & small enterprises is allowed up to ₹20 lakh per borrower; and on-lending by housing finance companies (HFCs) for housing is allowed up to ₹20 lakh per borrower.
The RBI said Bank credit to registered NBFCs (other than MFIs) and HFCs for on-lending will be allowed up to an overall limit of 5 per cent of the individual bank’s total priority sector lending.
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