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Reserve Bank of India (RBI) relaxed the norms for categorising priority sector lending of commercial banks to microfinance institutions (MFIs).
According to the present norms, banks can categorise credit extended to MFIs as priority sector lending if
if at least 75 per cent of loans given by MFIs is for income generating activity.
Now, the central bank relaxed this limit to at least 70 per cent. Thus, according to the relaxed norm, bank credit to MFIs for onlending will be eligible for categorisation as priority sector advance if aggregate amount of loan, extended for income generating activity, is not less than 70 per cent of the total loans given by MFIs.
Priority sector lending is defined as credit to agriculture, micro and small enterprises, education, housing, and export credit.
RBI asked banks to increase their involvement in the financing of priority sector for overall economic development. Domestic banks are advised to achieve the target of priority sector lending at 40 per cent.
However, foreign banks with 20 and above branches in the country are required to be at par with domestic banks for priority sector targets in a phased manner over a maximum period of 5 years beginning April 1, 2013 i.e., till March 31, 2018.