Tuesday, April 12, 2016

Priority Sector Lending Certificates



i)   Purpose: To achieve the priority sector lending target in the event of shortfall and incentivize the surplus banks.

ii)   Nature of the Instruments: There will be no transfer of risks or loan assets.

iii)   Modalities: The PSLCs will be traded through the CBS portal (e-Kuber) of RBI.

iv)   Sellers/Buyers: Scheduled Commercial Banks (SCBs), Regional Rural Banks (RRBs), Local Area Banks (LABs), Small Finance Banks (when they become operational) and Urban Co-operative Banks.

v)  Types of PSLCs: There would be four kinds of PSLCs :–

i)  PSLC Agriculture: Towards the total agriculture lending target.

ii)  PSLC SF/MF: Towards lending to Small and Marginal Farmers.

iii) PSLC Micro Enterprises: Towards lending to Micro Enterprises.

iv)  PSLC General: Towards the overall priority sector target.

The above four types of certificates will represent specific loans and count for specific sub-targets/targets as hereunder:
Sr. No.
Type of PSLCs
Representing
Counting for
1
PSLC - Agriculture
All  eligible Agriculture loans except  loans  to  SF/MF 
Achievement of agriculture and overall PSL target
2
PSLC - SF/MF
All eligible loans to small/ marginal farmers
Acheivement of SF/MF, agriculture and overall PSL target
3
PSLC – Micro Enterprises
All   PSL   Loans   to Micro Enterprises
Achievement of micro- enterprise and overall PSL target
4
PSLC-General
The  residual priority sector
loans
Achievement of overall PSL target

A bank having shortfall in any sub-target will have to buy the specific PSLC. In case of shortfall in the overall target ,the bank may buy any of the available PSLCs.

vi) Computation of PSL achievement: Sum of outstanding priority sector loans, and the net nominal value of the PSLCs. Such computation will be done separately where sub targets are prescribed as on the reporting date.

vii)     Amount eligible for issue: Normally PSLCs will be issued against the underlying assets. However, a bank is permitted to issue PSLCs upto 50 percent of previous year’s PSL achievement without having the underlying in its books.

viii)   Credit Risk: There will be no transfer of credit risk on the underlying as there is no transfer of tangible assets or cash flow.

ix)    Expiry date: All PSLCs will expire by March 31st, irrespective of the date it was first sold.

x)    Settlement: The settlement of funds will be done through the e-Kuber portal.

xi)   Value and Fee: The nominal value of PSLC would represent the equivalent of the PSL. The fee to the seller will be market determined.

xii)    Lot Size: A standard lot size of Rs.25 lakh and its multiples.

xiii)   Accounting: The fee paid would be treated as an ‘Expense’ and the fee received would be treated as ‘Miscellaneous Income’.

xiv)         Disclosures: Both seller and buyer shall report the amount of PSLCs sold and purchased during the year in the ‘Disclosures to the Balance Sheet’.
Based on RBI notification dated 7/4/17. For any further clarification, please refer www.rbi.org.in................. Poppy Sharma