RBI raises limit on bank credit to NBFCs

The Reserve Bank of India (RBI) has said that credit to NBFCs (other than MFIs) for on-lending towards agriculture, micro and small enterprises (MSEs) and housing sector under priority sector lending (PSL) will be allowed up to a limit of 5 percent of the individual bank’s total PSL on an ongoing basis.

RBI

The move is done in order to encourage banks to lend to NBFCs, especially housing finance companies (HFCs), which are currently undergoing a liquidity crunch.

The RBI said its latest instructions will be valid for the current financial year, after which they will be reviewed.

However, loans disbursed under the on-lending model will continue to be classified as PSL till the date of repayment/maturity, the Business Line reported.

Under the on-lending model, banks can classify only fresh loans sanctioned by NBFCs out of bank borrowings on or after the date of the issue of the circular. Loans granted by HFCs under the existing on-lending guidelines will continue to be classified under priority sector by banks.

Bank credit to registered NBFCs (other than MFIs) for on-lending will be eligible for classification as a priority sector under the respective categories, subject to conditions. For the ‘term lending’ component of ‘Agriculture’, the limit is Rs 10 lakh per borrower. For MSE borrowers, it is Rs 20 lakh. The limit for on-lending by HFCs has been doubled to Rs 20 lakh per borrower.

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