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NBFC body FIDC urges RBI to extend inclusion of bank credit to NBFCs for on- lending as priority sector by a year

Credit and Finance for MSMEs: The RBI had allowed on-lending by NBFCs up to Rs 20 lakh per MSE borrower and up to Rs 10 lakh per agri borrower.

The RBI in its „Statement on Developmental and Regulatory Policies? in October last year announced extending the facility till March 2022 from September 2021. (Image: pexels)

Credit and Finance for MSMEs: Finance Industry Development Council (FIDC), a representative body of non-banking financial companies (NBFCs) in India, on 

Tuesday urged the Reserve Bank of India (RBI) to extend inclusion of bank credit

to NBFCs for on-lending to micro and small enterprises (MSEs) and agriculture as priority sector lending by another year from March 2022. In a letter to the central bank?s governor Shaktikanta Das, FIDC requested “RBI to consider extending the dispensation of bank loans to NBFCs for on-lending to the agriculture and MSE sectors to be reckoned as a part of priority sector lending, as hitherto, for a further period till March 2023.”

The RBI in its „Statement on Developmental and Regulatory Policies? in October last year announced extending the facility till March 2022 from September 2021. It was earlier extended on April 7, 2021, to be valid till September 2021. “Considering the increased traction observed in delivering credit to the underserved/unserved segments of the economy, it has been decided to extend this facility till March 31, 2022,” Shaktikanta Das had said in his October 2021 monetary policy speech.

“The situation for small businesses and agriculture after Covid is still improving. Hence, the extension will encourage banks to continue lending more to NBFCs for on-lending to MSE and agriculture sectors that face challenges in accessing 

formal credit. For these enterprises, NBFCs are the last mile link in credit delivery for working capital, expansion of business, buying equipment, and other purposes,” Mahesh Thakkar, Director General, FIDC told Financial Express Online.

The RBI had allowed on-lending by NBFCs up to Rs 20 lakh per MSE borrower and up to Rs 10 lakh per agri borrower.

Priority sector lending is essentially referred to enabling bank credit to sectors such as MSE, agriculture, education, housing, renewable energy, etc., that are assigned priority over other sectors for economic growth.

Meanwhile, the NPA level in the MSME sector increased from 8.6 per cent in FY19 to 12.6 per cent and 12.5 per cent in FY20 and FY21 respectively and is likely to stay around the same level for FY22 as well, a recent study by Assocham-Crisil said. In fact, it had jumped steeply to 18.5 per cent in September 2021 from 16.8 per cent in March 2021. However, the overall MSME sector is likely to see 15-17 per cent growth in revenues in FY22 on the back of demand recovery following the pick-up in economic activity with the gradual easing of Covid restrictions, the study noted.