What changed
Previously, bank lending to NBFCs for on-lending to priority sectors was a temporary facility set to expire on March 31, 2022. RBI has now made this facility permanent, effective from May 13, 2022. The caps remain: 5% of a commercial bank's total PSL and 10% for SFBs lending to NBFC-MFIs, calculated on a four-quarter average basis.
What it means for you
Banks can now plan long-term partnerships with NBFCs for priority sector credit without worrying about regulatory expiry. The 5% cap ensures this channel remains a supplement, not a substitute, for direct lending. For SFBs, the 10% cap and the ₹500 crore GLP limit on NBFC-MFIs provide a clear, stable framework for microfinance on-lending.
What you must do
- Update internal PSL policies to reflect the permanent status of NBFC on-lending facility.
- Monitor your bank's four-quarter average exposure to NBFCs for on-lending to ensure it stays within the 5% (commercial banks) or 10% (SFBs) cap.
- For SFBs, verify that NBFC-MFI partners have a gross loan portfolio not exceeding ₹500 crore as of the previous March 31.
- Review existing NBFC partnerships and consider expanding them within the cap to meet PSL targets efficiently.
Who it affects
All Scheduled Commercial Banks (excluding RRBs, UCBs, LABs), Small Finance Banks (SFBs), NBFCs and HFCs receiving on-lending from banks, NBFC-MFIs and other MFIs (Societies, Trusts) borrowing from SFBs
What is the cap for commercial banks lending to NBFCs for priority sector on-lending?
The overall limit is 5% of the individual bank's total priority sector lending, calculated as a four-quarter average.
Can SFBs lend to any NBFC-MFI under this facility?
No, SFBs can only lend to registered NBFC-MFIs and other MFIs that are members of an RBI-recognized Self-Regulatory Organisation and have a gross loan portfolio of up to ₹500 crore as on March 31 of the previous financial year.
What happens if an NBFC-MFI's GLP exceeds ₹500 crore after receiving a loan from an SFB?
All priority sector loans created before the GLP limit was exceeded will continue to be classified as PSL by the SFB until repayment or maturity.