Priority Sector Lending (PSL) - On-lending by Small Finance Banks (SFBs) to NBFC-MFIs

Last updated: 06 May 2021

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The Reserve Bank of India has updated its guidelines regarding Priority Sector Lending (PSL) for Small Finance Banks (SFBs). SFBs can now include lending to registered NBFC-MFIs and other recognised MFIs in their PSL classification. This applies to fresh credit for on-lending to individuals, provided the MFI has a gross loan portfolio of up to ₹500 crore as of March 31, 2021. This facility is available until March 31, 2022.

Reserve Bank of India

RBI/2021-22/27
FIDD.CO.Plan.BC.No.10/04.09.01/2021-22

May 5, 2021

The Chairman/ Managing Director
Chief Executive Officer
Small Finance Banks

Dear Sir/Madam,

Priority Sector Lending (PSL) - On-lending by Small Finance Banks (SFBs) to NBFC-MFIs

As per extant guidelines, lending by Small Finance Banks (SFBs) to Micro-Finance Institutions (MFIs) for on-lending is not reckoned for priority sector lending (PSL) classification. In view of the fresh challenges brought on by the COVID-19 pandemic and to address the emergent liquidity position of smaller MFIs, it has been decided to allow PSL classification to the fresh credit extended by SFBs to registered NBFC-MFIs and other MFIs (Societies, Trusts etc.) which are members of RBI recognised ‘Self-Regulatory Organisation’ of the sector and which have a ‘gross loan portfolio’ of upto ₹500 crore as on 31 March 2021, for the purpose of on-lending to individuals. Bank credit as above will be permitted up to 10% of the bank’s total priority sector portfolio as on 31 March, 2021.

2. The above dispensation shall be valid upto March 31, 2022. However, loans thus disbursed will continue to be classified under Priority Sector till the date of repayment/maturity whichever is earlier. Further, banks will be required to adhere to the conditions prescribed for on-lending under para 21 of our Master Directions on PSL dated September 4, 2020 (updated as on April 29, 2021).

3. The guidelines shall come into effect from the date of the issuance of this circular.

Yours faithfully

(Sonali Sen Gupta)
Chief General Manager-in-Charge

FAQ :

Yes, under new guidelines, Small Finance Banks (SFBs) can lend to registered NBFC-MFIs and other recognised MFIs for on-lending purposes, and this lending will be reckoned for Priority Sector Lending (PSL) classification.

The MFIs must be registered NBFC-MFIs or other MFIs (Societies, Trusts etc.) that are members of an RBI recognised 'Self-Regulatory Organisation' and had a gross loan portfolio of up to ₹500 crore as on March 31, 2021.

Yes, the credit extended by SFBs to these MFIs will be permitted up to 10% of the bank's total priority sector portfolio as on March 31, 2021.

This dispensation is valid until March 31, 2022. However, loans disbursed under this facility will continue to be classified under Priority Sector until their repayment or maturity, whichever is earlier.

Yes, banks will be required to adhere to the conditions prescribed for on-lending under para 21 of the Master Directions on PSL dated September 4, 2020 (updated as on April 29, 2021).

Notification No : RBI/2021-22/27 FIDD.CO.Plan.BC.No.10/04.09.01/2021-22
Source : https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12081&Mode=0

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