RBI Opens Banks Credit for NBFCs to on-lend Continuously to Priority Sector

BANKING AND ECONOMY

The Reserve Bank of India (RBI) decided to allow banks to lend to NBFCs for on-lending to priority sectors on an ongoing basis. The move ensures the continuation of the synergies that have been developed between banks and Non-Banking Finance Companies ( NBFC) in delivering credit to the specified priority sectors. The same holds true for small finance banks who are on-lending to NBFC-MFIs. This facility was earlier allowed till March 31, 2022.

The bank credit to NBFCs, including housing finance companies (HFCs), for on-lending to priority sectors, will be allowed up to an overall limit of 5 percent of an individual bank's total priority sector lending. Small finance banks for on-lending to NBFC-MFIs and other MFIs, which are RBI recognized, will be allowed up to an overall limit of 10 percent of an individual bank’s total priority sector lending.

   The RBI also notified that small finance banks will be allowed to lend to registered NBFC-MFIs and other MFIs who have a gross loan portfolio of up to Rs 500 crore as of March 31 of the previous financial year. 

Important Points for the exam:

  • The Reserve Bank of India (RBI) decided to allow banks to lend to NBFCs for on-lending to priority sectors on an ongoing basis.
  • The bank credit to NBFCs, including housing finance companies (HFCs), for on-lending to priority sectors, will be allowed up to an overall limit of 5 percent of an individual bank's total priority sector lending.
  • Small finance banks for on-lending to NBFC-MFIs will be allowed up to an overall limit of 10 percent of an individual bank’s total priority sector lending.

Facts to Know:

  • Priority sector lending is lending to those sectors of the economy which may not otherwise receive timely and adequate credit. 
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