Clarification: The normal trading hours shall be from 10 AM to 4:30 PM. The PSLC market operates on all days except Saturdays, Sundays, holidays declared under The Negotiable Instruments Act, 1881 by the Government of Maharashtra. and such holidays as RBI may declare from time to time.

Clarification: The nature of PSLC trading has been kept anonymous to maintain most efficient price discovery. There is no provision for settling deals on bilateral basis and reporting on the portal subsequently. RBI has the discretion to cancel any deals which is settled at substantially higher/ lower premiums as compared to the prevailing rates on the portal.

Clarification: In the case of bank’s lending to NBFCs / MFIs / HFCs for on-lending, only that portion of the portfolio should be reckoned for PSL classification that has been disbursed by the NBFC / MFI / HFC to the ultimate borrower/s as on the reporting date. The reckoning of residual portfolio, if any, can be done on subsequent reporting dates, based on the disbursement of eligible loans and reported by the NBFC / MFI / HFC to the bank.

Clarification: The Master Directions on Priority Sector Lending, 2020 under para 21, 22, 23 allows banks to classify as PSL its lending to NBFCs including HFCs and NBFC-MFIs and other MFIs (Societies, Trusts etc.) which are members of RBI recognised SRO for the sector for on-lending to eligible priority sectors. Banks may adopt a uniform methodology for on-lending as follows:

a) Classification under PSL:

• The banks can classify on-lending to NBFC in the respective categories of PSL. The classification will be allowed only when the NBFC has disbursed the Priority Sector Loans to the ultimate beneficiary after receiving the funds from the bank.

• The NBFCs must provide a CA certificate to the banks stating that the individual loans of the portfolio, against which on-lending benefit is being claimed, are not being used to claim benefit from any other bank(s). Also, NBFC must put in place a suitable process to flag such loan(s) in their systems to enable its internal/statutory auditors as well as RBI supervisors to verify the same.

b) Information sharing:

• The banks may devise internal control mechanisms to ensure that the portfolio under on-lending is PSL compliant and adheres to co-terminus clause. The same should be made available to RBI supervisor/s as and when required. The following information/record should be collected by the bank from the EI:

1. Name of the beneficiary, Amount sanctioned, Loan amount outstanding, Loan tenure, disbursement date, category of PSL.

2. A statement to the effect that the portfolio is PSL compliant must be certified by a CA and shared by the EI with the bank on a quarterly basis in line with the PSL reporting by the bank to RBI. With respect to adherence to the co-terminus clause, the bank should ensure the same as on March 31 each year.

c) Adherence to co-terminus condition:

• The banks availing benefit of on-lending for PS assets must adhere to the condition that the tenure of the loan under on-lending to an EI is broadly co-terminus with the tenure of PS assets created by the EI.

• In view of the operational difficulties of exactly matching the co-terminus duration, the banks are allowed a variance of 3 months from the portfolio duration. An illustration for calculating adherence to the co-terminus duration is given below:

In the above illustration, the residual maturity of bank loan to NBFC should be around 22.22 months. Banks are expected to calculate the weighted average residual maturity of portfolio ever year as on March 31 and ensure that residual maturity of bank loan to NBFC matches with the weighted average residual maturity of on-lending portfolio within the tolerance limit of +-3 months.

d) Treatment of pre-payment, foreclosure loans:

• The PS assets created by the entity may undergo pre-payment or foreclosure thereby changing the ‘weighted maturity’ of the portfolio.

• As the banks are required to calculate ‘weighted maturity’ at the end of FY, the loan outstanding in the event of pre-payment/foreclosure will also change accordingly.

• The NBFC may add PS assets to the on-lending portfolio. However, it must meet conditions mentioned above such as disbursements for the PS asset by the eligible entity must be on/after receipt of funds from the bank. The addition of PS assets to the portfolio pool can also be done in case of pre-payment/foreclosure of other PS assets in the pool to ensure adherence to the co-terminus clause.

Clarification: Bank lending to NBFCs (other than MFIs) and HFCs are subjected to a cap of 5% of average PSL achievement of the four quarters of the previous financial year. In case of a new bank the cap shall be applicable on an on-going basis during its first year of operations. The prescribed cap is not applicable for bank lending to registered NBFC-MFIs and other MFIs (Societies, Trusts, etc.) which are members of RBI recognised ‘Self-Regulatory Organisation’ of the sector. Bank lending to such MFIs can be classified under different categories of PSL in accordance with conditions specified in our Master Directions FIDD.CO.Plan.BC.5/04.09.01/2020-21 dated September 04, 2020 and updated from time to time.

Clarification: While the guidelines allow sharing of risks and rewards between the bank and the NBFC for ensuring appropriate alignment of respective business objectives, the priority sector assets on the bank’s books should at all times be without recourse to the NBFC.

Clarification: Only if the bank can exercise its discretion regarding taking into its books the loans originated by NBFC as per the Agreement, the arrangement will be akin to a direct assignment transaction. If the Agreement entails a prior, irrevocable commitment on the part of the bank to take into its books its share of the individual loans as originated by the NBFC, it shall not be akin to direct assignment transaction.

Clarification: Both entities, the bank & the NBFC shall be guided by the bilateral Master Agreement entered by them for implementing the Co-lending Model (CLM). The agreement may state any cap on the number and amount of loans that can be originated by the NBFC under the Co-lending model.

Clarification: If the Agreement entails a prior, irrevocable commitment on the part of the bank, it has been advised that the partner bank and NBFC shall have to put in place suitable mechanisms for ex-ante due diligence by the bank. Such due diligence should ensure compliance with RBI regulations on KYC and outsourcing of activities before disbursal of the loans by the NBFC.

Clarification: Back-to-back basis implies that the loans will be first opened by NBFC and then bank will open loan accounts subsequently.