PSL: MFI on-lending income generation threshold eased to 70%
Current · Source: Reserve Bank of India · RBI/2012-13/558 · issued 27 Jun 2013 · ~1 min read
Quick answerRBI has reduced the minimum share of income-generating loans in MFI portfolios from 75% to 70% for banks to classify their credit to MFIs as priority sector advances. This eases the eligibility condition for on-lending by MFIs.
The rule, in the simplest words
Banks can now classify 70% of their lending to MFIs as priority sector advances.
MFIs must have at least 70% of their total loans for income-generating activities to qualify.
Banks can now lend to MFIs with a lower income-generating threshold.
How it plays out — a real example
Rahul, an agri & priority-sector lending officer in Indore, is excited to learn that the RBI has eased the income-generating threshold for MFIs. This means he can now lend to more MFIs that serve lower-income segments, helping them grow their businesses and improve the lives of their customers. Rahul updates his internal policies and reviews the portfolios of his existing MFI partners to identify loans that now qualify as priority sector advances.
What changed
Previously, bank loans to MFIs for on-lending qualified as priority sector only if at least 75% of the MFI's total loans were for income-generating activities. The RBI has now lowered this threshold to 70%, effective from June 27, 2013. All other conditions from the July 20, 2012 circular remain unchanged.
What it means for you
Banks can now classify a larger portion of their lending to MFIs as priority sector advances, as the compliance bar for MFIs has been lowered. This may encourage banks to increase credit flow to MFIs, especially those serving lower-income segments, while still ensuring a majority of MFI lending is for productive purposes.
What you must do
Update internal PSL classification policies to reflect the new 70% income-generation threshold for MFI on-lending.
Review existing MFI partner portfolios to identify loans that now qualify as priority sector under the relaxed norm.
Communicate the revised criterion to credit and risk teams handling MFI exposures.
Ensure all other conditions from the July 2012 circular remain in compliance.
Who it affects
All scheduled commercial banks (excluding RRBs), Microfinance institutions (MFIs) seeking bank funding, Bank credit and priority sector lending teams
❓ Common questions
Regulatory timeline
Stated effective dateeffective from June 27, 2013
Decoded by BankPulse2026-06-18 15:06 IST
Built from our lineage records — each fact carries its provenance; missing history simply is not shown (never guessed).
Does this change apply to all MFI loans or only new ones?
The circular does not specify a cut-off date for existing loans. Banks should apply the revised 70% threshold to all MFI on-lending facilities for priority sector classification from the circular date.
What other conditions from the July 2012 circular remain unchanged?
All other guidelines in paragraph VIII of the July 20, 2012 circular, including definitions and eligibility criteria for MFI on-lending, continue to apply.
📜 Read the original circular — full text as issued by RBI
RBI/2012-13/558
RPCD.CO.Plan.BC 80/04.09.01/2012-13
June 27, 2013
The Chairman/ Managing Director/
Chief Executive Officer
[All scheduled commercial banks
(excluding Regional Rural Banks)]
Madam/Dear Sir,
Priority Sector Lending-Targets and Classification-Bank loans to MFIs for on-lending-
Amendment in income generation criteria
Please refer to Paragraph VIII (a) of circular No. RPCD.CO.Plan. BC.13/04.09.01/2012-13 dated July 20, 2012 on Priority Sector Lending-Targets and Classification wherein it has been mentioned, inter alia, that bank credit to MFIs for onlending will be eligible for categorization as priority sector advance if aggregate amount of loan, extended for income generating activity, is not less than 75% of the total loans given by MFIs.
2. On a review of the above provision, it has been decided that bank credit to MFIs for onlending will now be eligible for categorization as priority sector advance if aggregate amount of loan, extended for income generating activity, is not less than 70% of the total loans given by MFIs.
3. All other guidelines in terms of Para VIII of circular No. RPCD.CO.Plan. BC.13/04.09.01/2012-13 dated July 20, 2012 will remain unchanged.
Yours faithfully,
(A. K. Misra)
General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2012-13/558 · issued 27 Jun 2013. 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 RRBs), Microfinance institutions (MFIs) seeking bank funding, Bank credit and priority sector lending teams), your first concrete step on “PSL: MFI on-lending income generation threshold eased to 70%” is: “Update internal PSL classification policies to reflect the new 70% income-generation threshold for MFI on-lending.” (RBI issued this 27 Jun 2013).
Circular: RBI/2012-13/558 -- PSL: MFI on-lending income generation threshold eased to 70%
Issued: 27 Jun 2013
Action required: Update internal PSL classification policies to reflect the new 70% income-generation threshold for MFI on-lending.
Action required: Review existing MFI partner portfolios to identify loans that now qualify as priority sector under the relaxed norm.
Action required: Communicate the revised criterion to credit and risk teams handling MFI exposures.
Action required: Ensure all other conditions from the July 2012 circular remain in compliance.
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.
💬 Banker Discussion
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
BankPulse Compliance Evidence Pack — generated 03 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=8073&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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