NBFC on-lending to agriculture, MSE, and housing sector to be considered priority sector loans: RBI
The bank indicated that on-lending by NBFCs for 'term lending' component towards MSEs will have a limit of Rs 20 lakh per borrower.
The Reserve Bank of India (RBI) on Tuesday said 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.
The RBI said this is being done in order to boost credit to the needy segment of borrowers.
As per revised norms, on-lending by NBFCs for 'term lending' component under agriculture will be allowed up to Rs 10 lakh per borrower.
In case of micro and small enterprises (MSEs), the limit will be Rs 20 lakh per borrower.
In housing sector, the limit has been increased from Rs 10 lakh to Rs 20 lakh per borrower for classification of the loan as priority sector lending.
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.
An RBI circular also clarified that bank credit to NBFCs for on-lending will be allowed up to a limit of five percent of individual bank's total priority sector lending on an ongoing basis.
Further, these norms will be reviewed after March 31, 2020, the RBI said.
Under the priority sector norms, banks are mandated to lend a particular portion of their funds to specified sectors, like agriculture, education, export, MSME, and social infrastructure.
In July 2019, the Department of Financial Services (DFS) informed that RBI is examining the priority sector lending norms for promoting export credit.
Commenting on this, Commerce and Industry Minister Piyush Goyal said certain enabling guidelines are under consideration and when issued, those are expected to release an additional Rs 35,000 to Rs 68,000 crore export credit under priority sector.
Goyal added that the government has taken various steps to increase the flow of credit to micro, small and medium enterprises' (MSMEs) exporters. The measures include raising interest subsidy rate from three percent to five percent, among others.