RBI lends a helping hand to lenders to the grassroots – The Economic Times

Clipped from: https://economictimes.indiatimes.com/small-biz/sme-sector/rbi-lends-a-helping-hand-to-small-finance-banks/articleshow/82400621.cmsSynopsis

RBI has allowed SFBs to classify fresh lending to MFIs with asset size of up to Rs 500 crore as priority sector lending for on-lending to individual borrowers. This facility will be available up to March 31, 2022.

KOLKATA: Small finance banks (SFBs) and smaller microfinance companies got a special focus in the Reserve Bank of India‘s latest round of booster shots that are aimed at ensuring credit flow to the economically weaker sections.
The central bank opened a special liquidity window for SFBs to lend to companies in the interiors of the country. RBI has also fulfilled a long-standing demand by allowing these banks to classify their new loans to smaller microfinance companies as priority sector lending in an effort to ensure higher liquidity for the latter.

RBI’s resolution framework 2.0 would also allow these lenders the flexibility to restructure microfinance loans on a case-to-case basis. It will provide relief to stressed clients, said Alok Misra, chief executive of Microfinance Institutions Network, a self-regulator for NBFC-MFIs.

RBI said it would conduct special three-year long-term repo operations (SLTRO) of Rs 10,000 crore at repo rate for the SFBs, to provide further support to small business units, micro and small industries, and other unorganised sector entities that have adversely been affected by the pandemic.

This would be deployed for fresh lending of up to Rs 10 lakh per borrower and the facility would be available till October 31, 2021, the central bank said.

Allowing SFBs to classify fresh lending to MFIs with asset size of up to Rs 500 crore as priority sector lending would help both the entities. While it would ensure the much needed liquidity for smaller micro lenders, it would help SFBs to achieve the mandated 75% priority sector target easily and allow them to explore other avenues for lending, said ESAF Small Finance Bank managing director K Paul Thomas.

This facility will be available up to March 31, 2022.

ET had in December last year highlighted the possibility of RBI revising the priority sector rules to boost funding to smaller microfinance institutions.

“We are hopeful that RBI will extend this facility beyond March 2022,” said P Satish, executive director at Sa-Dhan, another industry body for MFIs.

Before Wednesday’s announcement, only universal banks were allowed to classify loans to MFIs as priority sector.

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