RBI opens liquidity tap to help shadow banks
NBFCs get priority sector tag for bank loans
The Reserve Bank of India (RBI) has given priority sector tag to bank loans extended to registered non-bank lenders for financing agriculture, small businesses and home buyers within specified limits.
The RBI said in a statement on developmental and regulatory policies as part of its third bi-monthly monetary policy review this fiscal that it has accorded priority sector status to bank loans to registered non-banking finance companies or NBFCs for onlending to finance agriculture activities upto ?1 million. The same tag will be available to bank lending to NBFCs for onlending to micro, small and small enterprises for upto ?2 million and to home buyers for upto ?2 million.
Agriculture accounts for about 17% of the economy but is the largest employer in the country. Small businesses contribute significantly to the value addition in the manufacturing sector. Many exporters are small businesses. The authorities have been trying to promote affordable housing in recent months to stimulate the real estate sector, which is also a major job creator.
The central bank said detailed guidelines will be issued by August.
The decision is taken with "a view to further increasing the credit flow to certain priority sectors which contribute significantly to the economic growth in terms of export and employment, and recognizing the role played by NBFCs in providing credit to these sectors," said the RBI statement.
The Reserve Bank of India ( RBI) announced two key measures to help stressed nonbanking financial companies ( NBFCs) raise funds from banks.
First, the central bank increased the ceiling for a bank's exposure to a single NBFC to 20% of its Tier I capital from 15% earlier.
Second, it allowed bank lending to NBFCs excluding microfinance institutions for on-lending to certain sectors to be classified as priority sector loans.
"Under the revised guidelines on large exposure framework (LEF) that came into effect from 1 April 2019, a bank's exposure to a single NBFC is restricted to 15% of its Tier I capital, while for entities in the other sectors, the exposure limit is 20% of Tier I capital of the bank, which can be extended to 25% by banks' boards under exceptional circumstances," RBI said on Wednesday, adding it has been decided to raise a bank's exposure limit to a single NBFC to 20% of a bank's Tier I capital.
RBI also said that to boost credit flow to certain priority sectors, bank lending to registered NBFCs for on-lending to agriculture (investment credit) up to 10 lakh; micro and small enterprises up to ?20 lakh; and housing up to ?20 lakh per borrower will be classified as priority sector lending.
Detailed guidelines these above steps will issued by the end of month, RBI said.
The measures aim to address some of the pain points in the economy. Agriculture makes up about 17% of the economy but is the largest employer and has been under stress for some time, affecting livelihoods. Small businesses, on the other hand, contribute significantly to the value addition in the manufacturing sector and contribute to exports. Housing, a major jobon be the creating industry, too has been under a prolonged slump, leading to job losses.
The government has been trying to promote affordable housing in recent months to stimulate this industry.
After increasing the tax break available to individuals buying affordable homes in the Union budget, finance minister Nirmala Sitharaman last week announced National Housing Bank's ( NHB) fresh liquidity window for housing finance companies. The scheme called Liquidity Infusion Facility ( LIFt) offered ? 10,000 crore for housing financiers for lending to individuals for purchasing affordable homes.
RBI governor Shaktikanta Das said on Wednesday that the RBI has identified 50 large non- banks, including some housing finance companies, and is monitoring them. "It is our endeavour to ensure that there is no collapse of any large systematically large NBFCs," he added.