Small Finance Banks (SFBs) are finding fresh credit requests from smaller sized micro-finance institutions (MFIs) for on-lending just after the Reserve Bank of India in May permitted priority sector lending classification to fresh credit extended by these banks to micro-lenders. After finding the proposals from MFIs, SFBs have began the approach of supplying fresh credit facilities beneath priority sector lending (PSL).
The RBI, issuing a circular on May 5, stated in view of the fresh challenges brought on by the pandemic, and to address the emergent liquidity position of smaller sized MFIs, it has been decided to let PSL classification to the fresh credit extended by SFBs to registered NBFC-MFIs and other MFIs, which are members of RBI- recognised Self-Regulatory Organisation of the sector and which have a gross loan portfolio of up to Rs 500 crore as on March 31, 2021, for the goal of on-lending to folks.
Ujjivan Small Finance Bank has received proposals from NBFC-MFIs for fresh lending. “We are in dialogue with a lot of MFIs now. But, I think we are likely to take a few calls. Cannot say how many. So far we have not disbursed any. We are likely to take some calls,” the bank’s MD & CEO Nitin Chugh told FE. “Since inception, we have been extending support to MFIs. Now, we are permitted to give fresh lending to smaller MFIs with asset-size of up to Rs 500 crore. Apart from MFIs, we have extended credit facilities to those institutions which support budding smaller MFIs. We have started the process of fresh credit facilities to MFIs under PSL and we are getting fresh credit requests from them,” ESAF Small Finance Bank stated.
Notably, the PSL dispensation will be valid up to March 31, 2022. However, loans therefore disbursed will continue to be classified beneath priority sector till the date of repayment/maturity, whichever is earlier.
According to credit rating agencies, as most modest finance banks had operated as MFIs just before converting into an SFB, they have a great understanding of the micro-finance space and would be in a superior position to evaluate the credit profiles of the smaller sized MFIs to lend. And, the PSL categorisation must incentivise SFBs to on-lend to smaller sized MFIs, which are at present facing funding constraints following the resurgence of the second Covid wave.