We have not recommended increase in PSL: RBI panel chief Mor

The head of an RBI panel on financial inclusion today clarified the committee has not recommended an increase in priority sector lending (PSL) requirement for banks, but has instead suggested a system of risk weights according to sectors and regions where credit has not reached.
"A lot of the priority sector credit is being absorbed by the existing developed states. You are not seeing it going to different areas. We say if you lend money there, you will get another 20 per cent weightage. The idea is to encourage banks to go in difficult areas and difficult sectors," Nachiket Mor told reporters here.

On the sectors, Mor cited the direct farm loans which he said have a cost of 25 per cent spent only in reaching a customer and in paper work, while the same for small businesses is 10 per cent.
Similarly, on the region front, the veteran banker cited a district in Kerala which has 97 per cent penetration on the loans front, but another one in Arunachal Pradesh has only 3 per cent penetration. Hence, there is a case for incentivising banks to go into areas like the latter.
The Committee on Comprehensive Financial Services for Small Businesses and Low Income Households headed by Mor has said, "The committee recommends that the RBI revise the PSL targets and require banks to meet an adjusted PSL target of 50 per cent against the current requirement of 40 per cent."

Mor clarified on it today, saying, "We have not recommended an increase in PSL requirements, they remain at 40 per cent. If a bank did 40 per cent under current guidelines, they will get 50 per cent automatically."
PSL is a system of specialised lending for the uplift of backward sections of the society. Banks need to typically disburse 40 per cent of their annual lending to such sections, which include direct and indirect farm credit, micro and small businesses.