Current · Source: Reserve Bank of India · RBI/2021-22/110 · issued 08 Oct 2021 · ~2 min read
Quick answerRBI has extended the PSL classification for bank loans to NBFCs (excluding MFIs) for on-lending until March 31, 2022. This move supports credit flow to underserved segments. Loans disbursed under this model remain PSL until repayment or maturity.
The rule, in the simplest words
Banks can still call loans they give to NBFCs (except MFIs) on-lending as Priority Sector Lending until March 31, 2022.
Any loan already given stays Priority Sector Lending until it is fully paid back or reaches its maturity date, whichever comes first.
This keeps banks on track to meet their PSL targets and helps give credit to people who usually don’t get it.
The rule does not change how housing loans from Housing Finance Companies on-lending are treated.
How it plays out — a real example
Rahul, a senior credit officer in Pune, is reviewing a new loan to an NBFC that will help small farmers buy seeds. He marks it as PSL because the RBI rule still allows it until March 31, 2022, and he knows the loan will stay PSL until the farmer repays it.
What changed
The facility allowing bank lending to NBFCs (other than MFIs) for on-lending to be classified as Priority Sector Lending was set to expire on September 30, 2021. RBI has now extended this facility until March 31, 2022, as announced in the October 8, 2021 policy statement. Loans already disbursed will continue to be treated as PSL until their repayment or maturity, whichever is earlier.
What it means for you
Banks can continue to classify fresh loans to NBFCs for on-lending as PSL for another six months, helping meet PSL targets while channeling credit to underserved sectors. This extension provides regulatory certainty for banks and NBFCs engaged in on-lending models. Housing finance company (HFC) on-lending for housing remains unchanged under existing guidelines.
What you must do
Update internal PSL classification systems to reflect the extended deadline of March 31, 2022 for NBFC on-lending.
Continue monitoring loan disbursements to NBFCs (excluding MFIs) to ensure compliance with PSL master directions.
Communicate the extension to relevant credit and risk teams to align lending strategies.
Ensure that loans disbursed under this model are tracked for PSL status until repayment or maturity.
Who it affects
All Scheduled Commercial Banks (excluding RRBs, SFBs, UCBs, and LABs), NBFCs (other than MFIs) engaged in on-lending, Banks' PSL compliance and credit departments
❓ Common questions
Does this extension apply to loans to MFIs for on-lending?
No, the extension specifically covers NBFCs other than MFIs. MFI on-lending is governed by separate PSL guidelines.
Will loans disbursed before September 30, 2021 lose PSL status after the extension?
No, loans already disbursed under this facility will continue to be classified as PSL until their repayment or maturity, whichever is earlier.
Are HFC on-lending arrangements affected by this circular?
No, bank loans to HFCs for on-lending for housing purposes continue as per existing guidelines and are not impacted by this extension.
📜 Read the original circular — full text as issued by RBI
RBI/2021-22/110
FIDD.CO.Plan.BC.No.15/04.09.01/2021-22
October 8, 2021
The Chairman/ Managing Director
Chief Executive Officer
All Scheduled Commercial Banks
(Excluding Regional Rural Banks, Small Finance Banks, Urban Co-operative Banks and Local Area Banks)
Dear Sir/Madam,
Priority Sector Lending- Banks’ lending to NBFCs for on-lending – Extension of facility
Please refer to para 22 of Master Directions (MD) on PSL dated September 04, 2020 (updated as on June 11, 2021) wherein the facility of bank lending to NBFCs (other than MFIs) for on-lending was allowed to be classified as PSL up to September 30, 2021.
2. As announced in the ‘ Statement on Developmental and Regulatory Policies’ dated October 8, 2021 , the facility has been extended till March 31, 2022 keeping in view the increased traction observed in delivering credit to the underserved/unserved segments of the economy. Loans disbursed under the on-lending model will continue to be classified under Priority Sector till the date of repayment/maturity whichever is earlier. Further, bank loans to HFCs for on-lending for the purpose of housing, as prescribed in para 23 of our MD on PSL dated September 4, 2020 , will continue as hitherto.
3. All other guidelines as issued vide MD on PSL ibid will continue to apply.
Yours faithfully,
(Sonali Sen Gupta)
Chief General Manager-in-Charge
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2021-22/110 · issued 08 Oct 2021. The plain-English explanation above is BankPulse’s own independent summary.
Update internal PSL classification systems to reflect the extended deadline of March 31, 2022 for NBFC on-lending.
📜 Compliance
Continue monitoring loan disbursements to NBFCs (excluding MFIs) to ensure compliance with PSL master directions.
Communicate the extension to relevant credit and risk teams to align lending strategies.
Ensure that loans disbursed under this model are tracked for PSL status until repayment or maturity.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template
Example: if you are an IT/Systems lead at a bank this circular applies to (All Scheduled Commercial Banks (excluding RRBs, SFBs, UCBs, and LABs), NBFCs (other than MFIs) engaged in on-lending, Banks' PSL compliance and credit departments), your first concrete step on “PSL On-Lending to NBFCs Extended Till March 2022” is: “Update internal PSL classification systems to reflect the extended deadline of March 31, 2022 for NBFC on-lending.” (RBI issued this 08 Oct 2021).
Circular: RBI/2021-22/110 -- PSL On-Lending to NBFCs Extended Till March 2022
Issued: 08 Oct 2021
Action required: Update internal PSL classification systems to reflect the extended deadline of March 31, 2022 for NBFC on-lending.
Action required: Continue monitoring loan disbursements to NBFCs (excluding MFIs) to ensure compliance with PSL master directions.
Action required: Communicate the extension to relevant credit and risk teams to align lending strategies.
Action required: Ensure that loans disbursed under this model are tracked for PSL status until repayment or maturity.
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=12177&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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