The Reserve Bank of India (RBI) has further tightened the priority sector lending (PSL) norms for foreign banks by directing them to mandatorily create sub-targets so that they lend a portion of their loans to small and marginal farmers as well as micro enterprises (MSMEs) from April. 

The move is directed at foreign banks with over 20 branches and will come into force from the next financial year. The PSL norms mandate foreign banks to eventually lend 40 per cent of their total loan book to the priority sector, such as agriculture, rural infra, and MSMEs among others from April 2020. 

"In a notification over the weekend, RBI has said a sub-target of 8 per cent of net bank credit, or credit equivalent amount of off-balance sheet exposure, whichever is higher, shall become applicable for foreign banks with 20 branches and above, for lending to small and marginal farmers and micro enterprises (MSMEs) from FY19. 

It further said another sub-target of 7.50 per cent, using the same criterion, will be applicable to these banks from FY19 for lending to micro-enterprises. But in a partial relief, the apex bank removed the prior condition that only loans of up to Rs 5 crore and Rs 10 crore given to MSMEs would be PSL-compliant. The notification further said all bank loans to MSMEs will now qualify under PSL without any credit cap. #casansaar (Source - NewsOnair)