India Markets open in 3 hrs 14 mins

PSL benefits for bank loans to NBFCs for on-lending only till March 2020

FE Bureau
The central bank also raised a bank's exposure limits towards a single NBFC to 20% of the Tier-I capital of a bank against 15% currently. (Represnetational image)

The Reserve Bank of India (RBI) on Tuesday said that bank credit to registered non-banking financial companies (NBFCs) for on-lending will be eligible for classification as priority sector lending (PSL) only under certain conditions and the scheme will be valid up to March 31, 2020, after which it will be reviewed.

According to the notification, banks can classify only fresh loans sanctioned by NBFCs out of bank borrowings as priority sector lending from August 13. However, loans given by housing finance companies (HFCs) under the existing on-lending guidelines will continue to be classified as priority sector by banks.

The RBI also said that bank credit to NBFCs for on-lending will be allowed up to a limit of 5% of any individual bank's total PSL on an ongoing basis.

As part of its measures to boost the flow of credit to NBFCs, the central bank had announced a scheme to allow banks to classify loans to NBFCs for on-lending to agriculture, small enterprises and housing as PSL at its August policy.

On-lending towards the agricultural sector for the term-lending component will be allowed up to Rs 10 lakh, while that towards the micro and small enterprises sector is to be capped at Rs 20 lakh per borrower. The existing limit of Rs 10 lakh per borrower for on-lending by HFCs to be classified as PSL has been enhanced to Rs 20 lakh per borrower.

RBI governor Shaktikanta Das had said at the post-policy conference the central bank would not allow any large NBFC to collapse.

"It is our endeavour to make sure that there is no collapse of any systematically-important non-banking financial company," Das said.

The central bank also raised a bank's exposure limits towards a single NBFC to 20% of the Tier-I capital of a bank against 15% currently.