What changed
Previously, on-lending by SFBs to MFIs did not qualify for PSL classification. Now, fresh credit extended to registered NBFC-MFIs and other MFIs (members of an RBI-recognised SRO) with a gross loan portfolio up to ₹500 crore as on March 31, 2021, will be eligible for PSL classification. This dispensation is valid until March 31, 2022, and such loans retain PSL status until repayment or maturity.
What it means for you
SFBs can now boost their PSL compliance by lending to smaller MFIs, addressing liquidity gaps in the microfinance sector post-COVID. The 10% cap ensures focused support without overexposure. Banks must still follow existing on-lending conditions from the Master Directions on PSL.
What you must do
- Identify eligible NBFC-MFIs and other MFIs with gross loan portfolio ≤ ₹500 crore as on March 31, 2021, and membership in an RBI-recognised SRO.
- Ensure fresh on-lending to these entities does not exceed 10% of your total priority sector portfolio as on March 31, 2021.
- Classify such loans under PSL and maintain documentation for compliance with para 21 of the Master Directions on PSL (September 4, 2020).
- Monitor the validity period: disbursements must be made by March 31, 2022, but loans retain PSL status until repayment/maturity.
Who it affects
Small Finance Banks, NBFC-MFIs with loan portfolio up to ₹500 crore, Other MFIs (Societies, Trusts) that are SRO members, Microfinance borrowers (end-users)
Can SFBs classify existing on-lending to MFIs under this dispensation?
No, only fresh credit extended after the circular date (May 5, 2021) qualifies for PSL classification under this scheme.
What happens if an MFI's loan portfolio exceeds ₹500 crore after March 31, 2021?
The eligibility is based on the gross loan portfolio as on March 31, 2021. Subsequent growth does not disqualify the MFI for loans already extended, but new loans may not qualify if the portfolio crosses the threshold.
Is there a cap on the total amount SFBs can lend under this facility?
Yes, the aggregate of such on-lending cannot exceed 10% of the bank's total priority sector portfolio as on March 31, 2021.