For bank loans to NBFCs, RBI allows a priority sector classification

New Delhi: The Reserve Bank of India (RBI) allowed banks, including small finance banks, to continue extending credit to non-bank financial companies (NBFCs) for the purpose of on-lending to specified priority sectors on Friday.

Commercial banks could lend to NBFCs and Small Finance Banks (SFBs) could lend to NBFC-MFIs for the purpose of on-lending to specific priority sectors until March 31, 2022. "It has been decided to grant the... facility on an on-going basis to ensure continuation of the synergies that have been built between banks and NBFCs in delivering credit to the identified priority sectors," RBI stated in a circular.

In the case of commercial banks, credit to NBFCs, including HFCs, for on-lending will be authorised up to 5 percent of the total priority sector lending of the individual bank. Credit to NBFCMFIs (Non-Banking Financial Company - Micro Finance Institutions) and other MFIs (Societies, Trusts, and other MFIs) that are members of an RBI-recognized 'SelfRegulatory Organization' of the sector will be authorised up to 10 percent of an individual bank's total priority sector lending.

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