RBI tightens PSL norms, mandates auditor certification for lenders
Kolkata, Jan 19, 2026
Synopsis
The Reserve Bank of India has strengthened priority sector lending compliance, mandating external auditor certificates from intermediaries to prevent double-claiming of loans. This move follows scrutiny of banks for misclassifying agricultural loans. The RBI aims to ensure credit flows to priority sectors by enhancing monitoring and internal controls.
The Reserve Bank of India has tightened the compliance framework around priority sector lending (PSL) by requiring all intermediary lenders —microfinance institutions, non‑bank finance companies and housing finance companies — to furnish external auditors’ certificates ensuring that no loan is simultaneously claimed as priority sector by more than one bank.
The revised framework came just close on the heels of the regulator coming hard on ICICI Bank and HDFC Bank for over-classification of agricultural loans under priority sector loans even as the loans were used for non-farm purposes.
The regulator on Monday told all scheduled banks to obtain external auditors' certificates from non-banking finance companies (NBFC), NBFC-MFIs and housing finance companies confirming that on-lending benefits in respect to the loans have not been claimed by other banks.
RBI has also reiterated that banks should ensure that loans categorised as priority sector lending are given for approved purposes and the end use is monitored, by putting in place proper internal systems and controls.
Bank loans to intermediaries like NBFCs for on-lending to agriculture and micro & small enterprises is considered as a priority sector, up to an overall limit of 5% of individual bank’s total priority sector lending of the previous financial year.
Likewise, bank loans to NBFC-MFIs for onlending to individuals and members of self help and joint liability groups used for farming, small businesses are considered as priority sectors, up to an overall limit of 10% of an individual bank’s total priority sector lending of the previous financial year.
The regulator has also included bank credit to National Cooperative Development Corporation (NCDC) for on-lending to co-operative societies for certain purposes to be eligible for classification as priority sector lending.
The RBI said that the purpose of the tighter compliance in priority sector lending is to ensure continuous flow of credit to priority sectors. The compliance of banks will be monitored on a calendar quarter basis, it added.
[The Economic Times]
