The latest rise in corporate credit amplified the demand for priority sector lending certificates (PSLC)

The jump in lending to corporate borrowers has driven up demand for priority-sector lending certificates (PSLC), forcing banks to pay a higher premium to meet regulatory lending targets.

The total Priority Sector lending of a domestic commercial bank should be 40 per cent (target for foreign banks 32%) of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.

The scheduled commercial banks, , Regional Rural Banks (RRBs), Local Area Banks (LABs), Small Finance Banks,  Urban Co-operative Banks, and other lenders including microfinance institutions, registered moneylenders, etc. who have made loans to eligible categories under priority sector lending would be eligible to get ‘Priority Sector Lending Certificates (PSLC) for the amount of their loans.  The designated verifying authority viz. NABARD or its agents would verify the rules like whether the loan granted by an organization falls under the category of priority sector advance, whether the organization followed the norms of the rate of interest chargeable for such loans, and whether the loan duration is greater than 180 days, etc. After the primary verification from the verifying authority, the concerned bank or financial institution is allowed to self-certify the certificates subject to the periodic random monitoring of issuance of such certificates from the authority. The PSL certificates so issued can be bought by the other banks who find the shortfall in fulfilling the Priority Sector Lending (PSL) targets/sub-targets. The PSL certificate trading is done on RBI’s e-Kuber platform and has a standard lot size of Rs.25 lakh or multiples thereof and is valid till the end of the fiscal, irrespective of the date of issuance.

PSL certificates were originally issued in four different categories viz.   ‘PSLC – Agriculture’,  ‘PSLC – Small & Marginal Farmers’,   ‘PSLC – Micro Enterprises’ as well as ‘PSLC – General’ as per the scheme introduced in 2016. RBI revised the guidelines for Priority Sector Lending vide its circular dated Sept 4, 2020. In the revised PSL Guidelines, the Reserve Bank of India doubled credit limits for certain categories, and has included some fresh categories eligible for finance under the priority sector. These include loans to farmers for the installation of solar power plants; loans for the establishment of Compressed Bio Gas (CBG) plants; and bank finance for start-ups. Revised PSL guidelines will enable better credit penetration to credit deficient areas; increase lending to small and marginal farmers and weaker sections; boost credit to renewable energy, and health infrastructure. Banks that are unable to reach the priority sector lending target /sub-target are required to buy a PSL certificate. Although the PSLCs are issued against underlying assets, banks and financial institutions are allowed to issue only 50 per cent of their PSL achievements of each category in the previous year, notwithstanding the value of underlying assets in their books. The banks can buy specific categories of PSLCs to the extent of deficit in target/sub-target to be achieved by them. Banks should comply with the common guidelines for all categories of advances under the priority sector.

Both the buyers and sellers of the PSLCs shall submit the report, having the details of the sum of outstanding priority sector advance in their books, the position of PSLCs bought and sold as of the reporting date, to the Reserve Bank of India towards the fulfillment of their targets. The computation will be done separately where sub-targets are prescribed as on the reporting date.