New Delhi: The Reserve Bank of India has extended the priority sector classification for bank loans to NBFCs for on-lending during FY 2020-21 so as to provide continued liquidity support to the sector facing a crisis following defaults by a few large entities. Also Read - How RBI Set up War Room in Just One Day Amid Coronavirus Outbreak
Priority-sector tag to loans by banks to registered NBFCs would be up to March 31, 2020 as per an RBI order dated August 13, 2019. The bank had then said that the eligibility would be reviewed thereafter. Also Read - RBI to Purchase Rs 10 Crore Govt Securities Through Open Market Operations
In a letter about the changes to bank chairmen, managing directors and CEOs, the RBI has said that existing loans disbursed under the on-lending model will continue to be classified under the priority Sector till the date of repayment/maturity. Also Read - Depositors Need Not Worry, Their Money is Safe: RBI on Yes Bank Crisis
Also, bank credit to registered NBFCs (other than MFIs) and HFCs for on-lending will be allowed up to an overall limit of five per cent of individual bank’s total priority sector lending.
Further, banks shall compute the eligible portfolio under on-lending mechanism by averaging across four quarters, to determine adherence to the prescribed cap.