For bank loans to NBFCs, the RBI allows a preferred sector classification

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NEW DELHI: The Reserve Bank of India (RBI) on Friday allowed banks, including small financial banks, to continue lending to non-bank financial corporations (NBFCs) for on-lending to certain priority sectors.

Commercial banks could extend lending to NBFCs and Small Finance Banks (SFBs) to NBFC-MFIs for on-lending to certain priority sectors until March 31, 2022 the identified priority sectors have been built up,” RBI explained in a circular.

In the case of commercial banks, loans to NBFCs, including HFCs, are approved for on-lending up to 5 percent of the total lending of each bank’s priority sector. Lending to NBFCMFIs (Non-Banking Financial Company – Micro Finance Institutions) and other MFIs (corporations, trusts and other MFIs) that are members of a sector “self-regulatory organization” recognized by the RBI will be approved up to 10 per cent of a lending to the priority sector of each bank.

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