The Reserve Bank of India has extended the priority sector classification for bank loans to NBFCs for on-lending during FY 2020-21 so as to provide continued liquidity support to the sector facing a crisis following defaults by a few large entities.

Priority-sector tag to loans by banks to registered NBFCs would be up to March 31, 2020 as per an RBI order dated August 13, 2019. The bank had then said that the eligibility would be reviewed thereafter.

In a letter about the changes to bank chairmen, managing directors and CEOs, the RBI has said that existing loans disbursed under the on-lending model will continue to be classified under the priority Sector till the date of repayment/maturity.

Also, bank credit to registered NBFCs (other than MFIs) and HFCs for on-lending will be allowed up to an overall limit of five per cent of individual bank's total priority sector lending.

Further, banks shall compute the eligible portfolio under on-lending mechanism by averaging across four quarters, to determine adherence to the prescribed cap.