International BusinessRBI tightens priority sector lending rules
In view of banks classifying even short-term loans to housing finance companies (HFCs) as priority sector lending, the Reserve bank of India (RBI) has moved to end this practice.
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Henceforth, the tenor of a bank loan to an HFC will have to correspond with the average loan maturity profile of the HFC to qualify as priority sector lending. In other words, only mid to long-term loans extended to HFCs will qualify as priority sector lending. A minimum of 40 per cent of the loan portfolio of a bank has to be priority sector lending as mandated and defined by RBI.
In a bid to ease fund constraints for HFCs, RBI has allowed banks to categorise loans made to non-banking finance companies (NBFCs) for on-lending to customers for amounts less than Rs 20 lakh as priority sector lending.
However, the eligibility under this measure is restricted to five per cent of a bank’s total priority sector lending on an ongoing basis. The above special dispensation is applicable till March 31, 2010.
“It has been brought to our notice that certain banks are extending short-term loans of tenures ranging from six months to one year to HFCs, and classifying the same as priority sector advances,” RBI said.
A minimum of 40 per cent of the loan portfolio of a bank has to be priority sector lending as mandated and defined by RBI.
In a bid to ease fund constraints for HFCs, RBI has allowed banks to categorise loans made to non-banking finance companies (NBFCs) for on-lending to customers for amounts less than Rs 20 lakh as priority sector lending.
However, the eligibility under this measure is restricted to five per cent of a bank’s total priority sector lending on an ongoing basis. The above special dispensation is applicable till March 31, 2010.
According to RBI, some banks are exploiting this scheme.
“It has been brought to our notice that certain banks are extending short-term loans of tenures ranging from six months to one year to HFCs, and classifying the same as priority sector advances,” RBI said.