Priority Sector Lending-Targets and Classification-Bank loans to MFIs for on-lending-pricing criteria


Reserve Bank of India, had released a Master Cir. RPCD.CO.Plan.BC.9/04.09.01/2013-14 on July 1, 2013 on Priority Sector Lending-Targets and Classification.

Paragraphs VIII (c) (i) and (ii) of the above Master Circular mentions about  Bank credit to MFIs  for on-lending to individuals and also to members of SHGs / JLGs which will be eligible for categorisation as priority sector advance under respective categoriesviz., agriculture, micro and small enterprise, and ‘others’, as indirect finance.

Reserve Bank of India, vide RBI/2013-14/515 RPCD.CO.Plan.BC 91/04.09.01/2013-14 dt.March 12, 2014 has made few changes:

Banks have to ensure MFIs comply with the cap on individual loans and margin cap as under in order to be eligible to classify these loans under priority sector as under:-.

(i) Cap on individual loans: – The average Base Rate of five largest commercial banks by assets multiplied by 2.75 per annum or cost of funds plus margin cap, whichever is less. The average of the Base Rate shall be advised by Reserve Bank of India.


(ii) Margin cap: Further, with effect from April 1, 2014, the margin cap shall not exceed 10 percent for MFIs having loan portfolio exceeding Rs.100 crore and 12 percent for others, as against 12 percent for all hitherto.

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