The SFB loan to MFIs for on-lending must be classified as a priority sector loan

The Reserve Bank of Indian has decided to authorize the classification of priority sector loans for loans granted by small financial banks (SFBs) to microfinance institutions (MFIs) for on-lending to individuals.

The decision was made to address MFI liquidity issues amid the severe Covid crisis.

In a virtual speech on Wednesday, RBI Governor Shaktikanta Das said: “Given the new challenges posed by the pandemic and to address the emerging liquidity position of small MFIs, MFIs are now permitted. to account for new loans to small MFIs (with asset size up to Rs 500 crore) for on-lending to individual borrowers as a priority sector loan. “

This installation will be available until March 31, 2022.

At present, loans made by small financial banks (SFBs) to microfinance institutions (MFIs) for on-lending are not taken into account in the classification of priority sector loans (PSL).

Bank credit will be authorized up to 10% of the total priority sector portfolio of the bank as of March 31, 2021, according to an RBI circular.

Loans disbursed under the scheme will continue to be classified in the priority sector until the date of repayment or maturity, whichever comes first.


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(Only the title and image of this report may have been reworked by Business Standard staff; the rest of the content is automatically generated from a syndicated feed.)

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