Priority Sector Lending Certificates (PSLCs) are negotiable certificates issued against priority sector loans of banks. PSLCs aims that, banks can earn a premium for surpassing targets of priority sector lending. PSLCs are introduced to enhance lending under priority sector.
As per defined by RBI, ‘Priority sector lending (PSL) should constitute 40 percent of Adjusted Net Bank Credit(ANBC) or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.
Priority Sector Lending Certificates (PSLCs) scheme was first suggested in the report of former governor of RBI Dr. Raghu Ram Rajan led Committee on Financial Sector Reforms – ‘A Hundred Small Steps’
What is Priority Sector Lending (PSL)?
PSL is norms set by RBI for the commercial banks in which the banks are suppose to lend 40% of their total loans to some particular sectors, in a financial year. The below sectors are mandated by RBI as the priority sectors.
- Micro and Small Enterprises
- Export Credit
The Sub-targets are also specified for certain sectors like 18% to agriculture, 8% to small and marginal farmers and 7.5% to micro units etc.
Benefits of PSLCs:
Some banks fail to lend to the priority sectors and their target of 40 % is not fulfilled. While other banks fulfilled the same or even lend more than their specified target.
In this case, the bank which failed to reach the target of 40% can buy the PSLCs issued by some other bank which completes the target. Now the failed bank can reach the 40% target to adjust their balance sheet positively in the financial year. It also enhances the lending to the categories under priority sector.
Types of PSLCs:
There are four kinds of PSLCs:–
PSLC Agriculture: Counting for achievement towards the total agriculture lending target.
PSLC SF/MF (Small and Marginal Farmers): Counting for achievement towards the sub-target for lending to Small and Marginal Farmers.
PSLC Micro Enterprises: Counting for achievement towards the sub target for lending to Micro Enterprises.
PSLC General: Counting for achievement towards the overall priority sector target.
In April 2016, RBI issued guidelines on purchase and sale of Priority Sector Lending Certificates. The central bank also launched a platform for trading of the certificates through its Core Banking Solution (CBS) portal named e- Kuber. All Scheduled Commercial Banks (including Regional Rural Banks), Urban Co-operative Banks, Small Finance Banks and Local Area Banks are eligible to participate in the trading.