Banking · Priority Sector Lending
A Rural Cooperative Bank (RCB) is considering a proposal to finance a Microfinance Institution (MFI). The MFI is a Section 8 (not-for-profit) company with an asset size of Rs 150 crore, which provides small loans to farmers for dairy farming. Will this exposure count toward the RCB's Priority Sector Lending (PSL) targets under RBI regulations?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Yes, provided the RCB adheres to the 5 percent cap on on-lending and the MFI meets the qualifying asset criteria.✓
- 2Yes, but only if the MFI is registered as an NBFC with the RBI.
- 3No, Cooperative Banks are not permitted to lend to MFIs for the purpose of on-lending.
- 4Yes, loans to MFIs by Cooperative Banks are always eligible for PSL status without any caps.
Correct answer
Yes, provided the RCB adheres to the 5 percent cap on on-lending and the MFI meets the qualifying asset criteria.
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