For bank lending to NBFCs, RBI allows classification by priority sector

New Delhi: The Reserve Bank of India (RBI) on Friday allowed banks, including smaller financial banks, to continue extending credit to non-banking financial corporations (NBFCs) with the aim of on-lending to priority sectors specified.

Commercial banks could lend to NBFCs and Small Financial Banks (SFBs) could lend to NBFC-MFIs with the aim of onlending to specific priority sectors until March 31, 2022. “It has been decided to grant… facilitated on an on-going basis to ensure continuation of the synergies that have been created between banks and NBFCs in providing credit to identified priority sectors,” RBI said in a circular.

In the case of commercial banks, credit to NBFCs, including HFCs, for on-lending will be allowed up to 5% of the individual bank’s total priority sector lending. Credit to NBFCMFIs (Non-Banking Financial Corporation – Microfinance Institutions) and other MFIs (Companies, Trusts and other MFIs) that are members of a “Self-Regulatory Body” recognized by the sector RBI will be permitted up to 10 % of total lending to each bank’s priority sector.

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