RBI expands scope for banks' priority sector lending to NBFCs

The Reserve Bank of India (RBI) has decided to increase the ceiling of bank credit to registered NBFCs (other than MFIs) for on-lending that would be eligible for classification as priority sector in a bid to boost credit to the needy segment of borrowers. 

However, RBI said this would be subject to fulfilling certain conditions under respective categories of borrowers. 
Accordingly, RBI has increased the term-lending limit for on-lending by NBFCs under agricultural credit to Rs10 lakh per borrower.
For micro and small enterprises the on-lending limit by NBFC will be up to Rs20 lakh per borrower.
RBI also enhanced the existing limits for on-lending by HFCs vide on priority sector lending, from Rs10 lakh per borrower to Rs20 lakh per borrower.
Under the above on-lending model, banks can classify only the fresh loans sanctioned by NBFCs out of bank borrowings, on or after the date of issue of this circular. However, loans given by HFCs 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. RBI said the instructions will be valid for the current financial year up to 31 March 2020 and will be reviewed thereafter. However, loans disbursed under the on-lending model will continue to be classified under priority sector till the date of repayment/maturity.
The existing guidelines on bank loans to MFIs for on-lending will continue to be applicable for NBFC-MFIs, it added.