Current · Source: Reserve Bank of India · RBI/2008-09/315 · issued 08 Dec 2008 · ~2 min read
Quick answerRBI allows bank loans to NHB-approved HFCs for individual housing up to Rs 20 lakh per unit to count as priority sector, capped at 5% of the bank's total priority sector lending, valid until March 31, 2010.
The rule, in the simplest words
Banks can lend to HFCs approved by National Housing Bank for refinance, but only for housing loans up to Rs 20 lakh per unit.
Loans granted to HFCs up to March 31, 2010, continue to be classified as priority sector until repayment.
How it plays out — a real example
An agri & priority-sector lending officer in Indore helps a family get a housing loan from a bank, which is then lent to an HFC approved by National Housing Bank. The loan is for Rs 18 lakh, which is within the Rs 20 lakh limit per unit. The bank's priority sector lending is capped at 5% of its total lending, so this loan counts towards that target.
What changed
RBI decided that loans from banks to Housing Finance Companies (HFCs) approved by National Housing Bank for refinance can be classified under priority sector if the HFCs' end-use housing loans do not exceed Rs 20 lakh per dwelling unit per family. This eligibility is capped at 5% of the bank's total priority sector lending on an ongoing basis. The special dispensation applies to loans granted up to March 31, 2010, and such loans continue to be classified under priority sector until repayment.
What it means for you
Banks can now channel more funds to HFCs for affordable housing and still meet priority sector targets, up to a 5% cap. This expands the pool of eligible priority sector assets without requiring direct retail lending. Lenders must track that HFCs' end-use loans stay within the Rs 20 lakh per unit limit and ensure the aggregate does not exceed the 5% threshold.
What you must do
Verify that HFCs are approved by National Housing Bank for refinance before classifying loans as priority sector.
Ensure each HFC's on-lending to individuals does not exceed Rs 20 lakh per dwelling unit per family.
Monitor that total such loans do not exceed 5% of the bank's total priority sector lending on an ongoing basis.
Apply this classification only to loans granted to HFCs up to March 31, 2010; loans granted after that date are not eligible.
Maintain documentation to support priority sector classification for regulatory reporting.
Who it affects
All scheduled commercial banks (excluding Regional Rural Banks), Housing Finance Companies approved by National Housing Bank, Individual borrowers seeking housing loans up to Rs 20 lakh
❓ Common questions
What is the maximum loan amount per dwelling unit for HFC on-lending to qualify under this priority sector dispensation?
The housing loans granted by HFCs to individuals must not exceed Rs 20 lakh per dwelling unit per family.
Is there a cap on how much of a bank's priority sector lending can come from loans to HFCs?
Yes, the eligibility under this measure is restricted to five per cent of the individual bank’s total priority sector lending, on an ongoing basis.
Until when can banks grant loans to HFCs under this special dispensation?
The special dispensation applies to loans granted by banks to HFCs up to March 31, 2010. Loans granted by that date continue to be classified under priority sector until they are repaid.
📜 Read the original circular — full text as issued by RBI
RBI/2008-09/315
RPCD.CO.Plan.BC. 74 /04.09.01/2008-09
December 8, 2008
The Chairman/ Managing Director/
Chief Executive Officer
[All scheduled commercial banks
(excluding Regional Rural Banks)]
Dear Sir,
Priority Sector Lending – Loans to Housing Finance Companies (HFCs)
As announced by the Reserve Bank, vide Press Release No.2008-2009/842 dated December 6, 2008 , it has been decided that loans granted by banks to Housing Finance Companies (HFCs), approved by National Housing Bank for the purpose of refinance, for on-lending to individuals for purchase/construction of dwelling units may be classified under priority sector, provided the housing loans granted by HFCs do not exceed Rs.20 lakh per dwelling unit per family. However, the eligibility under this measure shall be restricted to five per cent of the individual bank’s total priority sector lending, on an ongoing basis.
2. The above special dispensation shall apply to loans granted by banks to HFCs up to March 31, 2010. Such loans granted till March 31, 2010 will continue to be classified under priority sector till they are repaid.
3. Please acknowledge receipt.
Yours faithfully,
(G. Srinivasan)
Chief General Manager-in-Charge
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2008-09/315 · issued 08 Dec 2008. The plain-English explanation above is BankPulse’s own independent summary.
Example: if you are a Compliance officer at a bank this circular applies to (All scheduled commercial banks (excluding Regional Rural Banks), Housing Finance Companies approved by National Housing Bank, Individual borrowers seeking housing loans up to Rs 20 lakh), your first concrete step on “Priority Sector Tag for Bank Loans to HFCs” is: “Verify that HFCs are approved by National Housing Bank for refinance before classifying loans as priority sector.” (RBI issued this 08 Dec 2008).
Circular: RBI/2008-09/315 -- Priority Sector Tag for Bank Loans to HFCs
Issued: 08 Dec 2008
Action required: Verify that HFCs are approved by National Housing Bank for refinance before classifying loans as priority sector.
Action required: Ensure each HFC's on-lending to individuals does not exceed Rs 20 lakh per dwelling unit per family.
Action required: Monitor that total such loans do not exceed 5% of the bank's total priority sector lending on an ongoing basis.
Action required: Apply this classification only to loans granted to HFCs up to March 31, 2010; loans granted after that date are not eligible.
Action required: Maintain documentation to support priority sector classification for regulatory reporting.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
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BankPulse Compliance Evidence Pack — generated 05 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=4689&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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