HOW DO PSL certificates work?

PSL certificates allow banks sitting on surplus loans to a priority sector to sell certificates to banks that haven’t met their targets, pocketing a sizeable fee for this trade. Rather than offering fresh loans, banks were only required to hold PSLCs reflecting lending by others.

How does priority sector lending work?

Priority Sectors Lending is the role exercised by the RBI to banks, imploring them to dedicate funds for specific sectors of the economy like agriculture and allied activities, education and housing and food for the poorer population.

How many PSL certificates are there?

The four types of Priority Sector Lending Certificates are: PSLC Agriculture: Priority Sector Lending Certificates for agriculture lending sub-target. PSLC SF/MF: Priority Sector Lending Certificates for small and marginal Farmers lending sub-target.

What is the expiry date of priority sector lending certificates?

1. What is the expiry date of PSLC? All PSLCs will be valid till March 31st and will expire on April 1st.

Is PSL mandatory?

Public sector lending (PSL) is mandated by the Reserve Bank of India (RBI), making it a requirement for domestic and foreign banks to offer loans to specific sectors and sub-sectors within the nation’s economy.

What is PSL category?

Priority sector lending is lending to those sectors of the economy which may not otherwise receive timely and adequate credit. This is essentially meant for an all-round development of the economy as opposed to focusing only on the financial sector.

Who comes under PSL?

The sub-target sectors of PSL include agriculture, which should account for 18\% of the total (with a caveat that 8\% of that goes to small farmers), and 7.5\% should go to small businesses. This is the statute for all domestic banks and for foreign banks (with national ties) with 20 branches or more.

Who monitors priority sector lending?

Reserve Bank of India
The priority sector lending by commercial banks is monitored by Reserve Bank of India (RBI) through periodical returns received from them.

What if a bank fails to achieve priority sector lending?

Banks who are not able to lend under priority sector on their own, can make outright purchases of such lending from other banks and also buy Inter Bank Participation Certificates (IBPC).

Why priority sector lending is important?

Priority Sector means those sectors which the Government of India and Reserve Bank of India consider as important for the development of the basic needs of the country and are to be given priority over other sectors. The banks are mandated to encourage the growth of such sectors with adequate and timely credit.

Is PSL applicable to cooperative banks?

UCBs have to reach the PSL target in phases — 45 per cent by March 2021 (from 40 per cent as at March-end 2020), 50 per cent by March 2022, 60 per cent by March 2023 and 75 per cent by March 2024.

How many sectors are there in PSL?

As per the RBI circular released in 2016, there are eight broad categories of the Priority Sector Lending. They are: (1) Agriculture (2) Micro, Small and Medium Enterprises (3) Export Credit (4) Education (5) Housing (6) Social Infrastructure (7) Renewable Energy (8) Others.

What are Priority Sector Lending certificates (PSLCs)?

Priority sector lending certificates (PSLCs) are financial instruments that can be borrowed against by banks in India, allowing them to make their target and sub-target goals in terms of loans being offered.

Does selling of Priority Sector Lending certificates cause a transfer of credit risk?

The selling or purchase of Priority Sector Lending Certificates does not cause a transfer of credit risk as Priority Sector Lending Certificates do not cause any change in the lender of any loan i.e. the lender is not replaced. Priority Sector Lending Certificates is different from Securitization as the latter involves a transfer of credit risk.

What is the total credit extended by banks in priority sector?

Total credit extended by banks in priority sector lending was INR 21,543,562.9 million (US$322,361 million as of June 2016) towards the end of financial year 2015.

What do you mean by the term ‘priority sectors’ in banking?

It means those sectors which the Government of India and Reserve Bank of India consider as important for the development of the basic needs of the country and are to be given priority over other sectors. The banks are mandated to encourage the growth of such sectors with adequate and timely credit.