Priority Sector Lending Certificates (PSLCs) are instruments that enable banks to achieve their priority sector lending targets without actually disbursing loans to sectors outside their comfort zone.
Salient features of Priority Sector Lending Certificates (PSLCs)
- The RBI mandates banks to lend a minimum of 40 per cent of their total loans to priority sectors such as agriculture, education, social housing, and micro enterprises.
- Aside from the overall target, banks are also required to meet sub-targets within this, such as 18 per cent towards agriculture (8 per cent for small and marginal farmers), 7.5 per cent for micro enterprises and 10 per cent for weaker sections.
- Priority Sector Lending (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.
- The said loans however do not change hands.
- Rather than offering fresh loans, banks were only required to hold PSLCs reflecting lending by others.
- Priority Sector Lending Certificates (PSLCs) are issued against the underlying assets; however, in the transaction, there is no transfer of risks or loan assets from the seller to buyer.
- There are four types of PSLCs: Agriculture, Small/Marginal Farmers, Micro Enterprises and General — that is, other than loans to agriculture and micro enterprises.
- A bank having shortfall in achievement of any sub-target will have to buy the specific PSLC to achieve the target. However, if a bank is having shortfall in achievement of the overall target only, as applicable to it, it may buy any of the available PSLCs.
- Under the Goods and Services Tax, PSLCs are taxable as goods at a standard rate of 18 per cent. The 40 per cent target stipulated by the PSL guidelines is applicable to banks, individually.
PSLC platform
- From April 2016 onwards, the RBI launched an online trading platform — the PSLC platform — to allow banks to trade in PSLCs to meet the sectoral sub-targets.
