Under the Priority Sector Lending (PSL) guidelines of Reserve Bank of India (RBI) issued on 20th July, 2012 bank credit to Micro Finance Institutions (MFIs) extended on, or after, April 1, 2011 for on-lending to individuals and also to members of Self Help Groups (SHGs)/Joint Liability Groups (JLGs) will be eligible for categorization as priority sector advance, provided not less than 85% of total assets of MFI (other than cash, balances with banks and financial institutions, government securities and money market instruments) are in the nature of “qualifying assets”. In addition, aggregate amount of loan, extended for income generating activity, is not less than 75% of the total loans given by MFIs.

A qualifying asset shall mean a loan disbursed by MFI which inter-alia satisfies some conditions on household income, indebtedness of the borrower, amount and tenure of loan as well as periodicity of repayment.

As per extant guidelines on Priority Sector Lending (PSL), all domestic Scheduled Commercial Banks (SCBs) are mandated to earmark 40 per cent of their Adjusted Net Bank Credit (ANBC) or Credit Equivalent Amount of Off-balance Sheet Exposure (OBE), whichever is higher, as on March 31 of the previous year, for lending to priority sector.

The categorization of bank credit to MFIs as priority sector advance as explained above is likely to improve the flow of funds to the sector.

This was stated by Minister of State for Finance, Shri Namo Narain Meena, in written reply to a question in the Lok Sabha today.

DSM/RS/ka

(Release ID :95163)

Priority sector lending eligibility for loans to microfinance institutions expands bank access when qualifying asset and loan use conditions are met. Bank credit to microfinance institutions for on lending to individuals and SHG/JLG members may be classified as priority sector where the MFI maintains not less than 85% of assets as qualifying assets (excluding certain liquid balances and securities) and where at least 75% of its loans finance income generating activities; qualifying assets must meet conditions on household income, indebtedness, loan amount, tenure and repayment periodicity, and domestic scheduled commercial banks must meet prescribed priority sector allocation of adjusted net bank credit or off balance sheet equivalents.