RBI report for trading PSL certificates, adding more sectors

A committee set up by RBI has suggested that the target for lending to the redefined priority sector be retained uniformly at 40 per cent and sought introduction of PSL certificates which can he traded.
The RBI's internal working group on Priority Sector Lending (PSL), chaired by one of its chief general managers, Lily Vadera, has called for "introducing PSL certificates which will enable banks to meet their PSL requirements even while leveraging their comparative advantage in lending."
Other key recommendations of the report include retaining the present 18 per cent target of Adjusted Net Bank Credit (ANBC) for agriculture, including medium enterprises within the ambit of priority sector lending as also bringing loans to sanitation, health care and drinking water facilities and renewable energy, among others, under the segment.

On Priority Sector Lending Certificates, it said: "The working group recommends introduction of PSLCs to enable banks meet their PSL requirements and allow leveraging of their comparative advantage. The model on PSLCs envisages that banks will issue PSLCs that can be purchased at a market determined fee on an electronic platform.
"This purchase will give the buyer a right to undershoot his PSL achievement for the stated amount of PSLCs, which would count specifically towards PSL achievement and thus would be sector/sub-sector specific where particular targets have been mandated," the working group said.
While it is not necessary for an issuer to have underlying assets on books at the time of issuing PSLCs or for the buyer to have a shortfall in obligation of that amount, it said "no bank can issue PSLCs of above 50 percent of the previous year's PSL achievement or excess over the last years PSL achievement, whichever is higher.

"However, there would be no limit on the amount of PSLCs that could be purchased for achievement of various targets."

On the education loans under the PSL category, the report has recommended a cap of Rs 10 lakh per borrower for both domestic education and overseas, against Rs 10 lakh for domestic loans and Rs 20 lakh for foreign education, irrespective of the sanctioned limit be considered eligible.
It also suggested continuation of the prevailing penal provisions if the target is not met and overtime introducing more stringent steps lie monetary penalties.
The central bank set up the PSL working group as the economy has changed since the PSL guidelines were conceived, and the focus has moved largely towards growth and inclusion. The objectives also included suggesting ways on how to achieve the PSL targets in the most effective way as well as measures to be taken in case of under-achievement.