RBI lends a helping hand to small finance banks

KOLKATA: Small finance banks and smaller microfinance companies got a special focus in the Reserve Bank of India‘s latest round of booster shots.

The central bank opened a special liquidity window for SFBs to lend to companies in the interiors of the country. RBI has also allowed these banks to classify their new loans to smaller microfinance companies as priority sector loans to ensure higher liquidity for the latter.

RBI 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 adversely affected during the current wave of 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.

RBI has also 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.

ET had earlier highlighted that the central bank has been contemplating revising the priority sector rules to boost funding to smaller microfinance institutions for quite some time.

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


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