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
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.