**Summary:**
The Reserve Bank of India (RBI) issued a circular (RBI/2021-22/27 FIDD.CO.Plan.BC.No.10/04.09.01/2021-22) on May 5, 2021, addressing Priority Sector Lending (PSL) concerning on-lending by Small Finance Banks (SFBs) to Non-Banking Financial Company-Micro Finance Institutions (NBFC-MFIs).
In response to challenges posed by the COVID-19 pandemic and to address liquidity issues faced by smaller MFIs, the RBI has decided to allow PSL classification for fresh credit extended by SFBs to registered NBFC-MFIs and other MFIs (Societies, Trusts, etc.). These MFIs must be members of an RBI-recognized Self-Regulatory Organization and possess a gross loan portfolio of up to ₹500 crore as of March 31, 2021. The on-lending must be for individuals.
The bank credit extended as described above will be permitted up to 10% of the bank's total priority sector portfolio as of March 31, 2021. This dispensation is valid until March 31, 2022; however, loans disbursed under this provision will continue to be classified under PSL until the date of repayment or maturity, whichever is earlier. Banks must adhere to the conditions prescribed for on-lending as outlined in para 21 of the Master Directions on PSL dated September 4, 2020, updated as of April 29, 2021.
These guidelines took effect from the date of issuance of the circular. For further information, contact Sonali Sen Gupta, Chief General Manager-in-Charge, Financial Inclusion and Development Department, Central Office, at Tel No.: 91-22-22601000 or cgmincfidd@rbi.org.in. The central office is located at 10th Floor, Central Office Building, Shahid Bhagat Singh Marg, Mumbai – 400 001.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the banking system and monetary policy.
Small Finance Banks: A type of banking institution in India focused on providing financial services to underserved populations.
Priority Sector Lending: A scheme by Reserve Bank of India mandating banks to allocate a certain portion of their lending to specific sectors of the economy.
MicroFinance Institutions: Institutions that provide financial services, such as small loans, to low-income individuals or groups.
COVID-19: The global pandemic caused by the SARS-CoV-2 virus, which created economic challenges addressed in the notification.
NBFC-MFIs: Non-Banking Financial Company - Microfinance Institutions, a category of financial institutions in India.
Self-Regulatory Organisation: Organizations recognized by the Reserve Bank of India that regulate the conduct of MFIs.
Mumbai, Maharashtra: City in India where the central office of the Reserve Bank of India is located.
भारतीय �रज़व र् बक�
------------------------------------- RESERVE BANK OF INDIA -----------------------------------
www.rbi.org.in
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
िव�ीय समावेशन और िवकास िवभाग,क��ीय कायार्लय, 10व� मंिज़ल,क��ीय कायार्लय िब�ल्डंग,शहीद भगत �सहं माग,र् मुंबई 400 001
टेलीफोन:Tel No.: +912222601000/ फैक्स: +91-22-22621011/22610948/22610943 ईमेल: cgmincfidd@rbi.org.in
Financial Inclusion and Development Department, Central Office, 10th Flr, Central Office Building, Shahid Bhagat Singh Marg,Mumbai 400001
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