RBI extends priority sector tag for bank loans to NBFCs by a year

New Delhi, March 23
The Reserve Bank of India has extended the priority sector classification for bank loans to NBFCs for on-lending during FY 2020-21 providing continued liquidity support to the sector that had sunk into crisis following defaults a few large entities.

Priority sector tag to loans by banks to registered NBFCs was eligible up to March 31,2020 as per an RBI order dated August 13, 2019. The bank had said then the eligibility would be reviewed thereafter.

In a letter informing the changes to bank chairmen, managing directors and CEOs, the RBI has further said that existing loans disbursed under the on-lending model will continue to be classified under Priority Sector till the date of repayment/maturity.

Also, Bank credit to registered NBFCs (other than MFIs) and HFCs for on-lending will be allowed up to an overall limit of five percent 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.