What changed
RBI has decided that misclassified priority sector loans reported by Principal Inspecting Officers during annual financial inspections will be added to the bank's shortfall under priority sector lending targets. Additionally, banks must report the nominal amount actually disbursed to end-borrowers when buying loans from intermediaries, not the premium-embedded amount paid.
What it means for you
Banks face increased scrutiny on priority sector loan classification; any misclassification will directly increase their reported shortfall, potentially leading to higher allocations to funds like RIDF. The new reporting rule for purchased loans prevents overstatement of priority sector lending by eliminating the premium paid to intermediaries from the reported amount.
What you must do
- Review all priority sector loan classifications to ensure accuracy before annual inspections.
- Adjust reporting for purchased loans from MFIs/NBFCs to reflect only the nominal amount disbursed to end-borrowers.
- Prepare for potential shortfall adjustments based on misclassifications identified by PIOs.
- Train staff on correct classification and reporting of priority sector loans.
Who it affects
All scheduled commercial banks (excluding RRBs), Priority sector lending departments, Loan origination and reporting teams, Banks purchasing loan portfolios from MFIs/NBFCs
What happens if my bank misclassifies a priority sector loan?
The misclassified amount will be added to your bank's shortfall under priority sector lending targets, increasing the amount you need to allocate to funds like RIDF.
How should we report loans purchased from MFIs or NBFCs?
Report only the nominal amount actually disbursed to the end-borrower, not the premium-embedded amount you paid to the intermediary.