RBI Asks Banks To Partner With NBFCs To Extend Priority Sector Loans

To allow deeper penetration of financial and banking services, the RBI has asked banks to enter into a tie-up with NBFC companies to extend loans to priority sectors. In this regard, non-deposit taking systemically important NBFCs have been allowed to co-originate priority sector loans with the banks.

The RBI said, as per the mutual agreement between the two entities i.e. banks and NBFs both the risks and rewards will be duly shared such that there is proper alignment of business objectives of each of the concern involved.

As per the current directive, banks are required to lend 40% of their overall loans to sectors considered or included in the priority sector list. The areas that form the part of priority sector lending include SME enterprises, affordable housing, agriculture and small ticket-size education loans.

And there also is available a provision as per which in case banks fall short of their lending to the priority sector, they are allowed to buy such loans or certificates in their respect from other lenders.

MK Jain, RBI Deputy Governor said, "While it (co-origination) would ensure skin in the game for both parties (lenders), it would benefit the borrowers under the priority sector segment in terms of cost of credit, which, on account of blending, could be substantially lower".

As per bankers, this partnership to boost lending in such area shall be in the interest of both banks as well as NBFCs. On a year on year basis, as on June 30, 2018, the lending to priority sector has seen an increase to Rs. 25 lakh crore.

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