PRIORITY SECTOR LENDING (PSL) – LENDING BY BANKS TO NBFCs FOR ON-LENDING

Aug. 14, 2019

The RBI issued a circular under which on-lending by registered NBFCs (other than MFIs) towards agriculture, MSEs and housing sector up to prescribed limits will be treated as priority sector loans. it is being done in order to boost credit to the needy segment of borrowers.

About:

Bank credit to registered NBFCs (other than MFIs) for on-lending will be eligible for classification as priority sector under respective categories subject to the following conditions:
- Agriculture: On-lending by NBFCs for ‘Term lending’ component under Agriculture will be allowed up to ₹ 10 lakh per borrower.
- Micro & Small enterprises: On-lending by NBFC will be allowed up to ₹ 20 lakh per borrower.
- Housing: Enhancement of the existing limits for on-lending by HFCs from ₹ 10 lakh per borrower to ₹ 20 lakh per borrower.
Under the revised on-lending model, banks can classify only the fresh loans sanctioned by NBFCs out of bank borrowing.
However, loans given by housing finance companies under the existing on-lending guidelines will continue to be classified under priority sector by banks.
Bank credit to NBFCs for on-lending will be allowed up to a limit of five per cent of individual bank's total priority sector lending on an ongoing basis.
These norms will be reviewed after March 31, 2020.