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Banking Awareness: Priority Sector Lending Certificates

Priority Sector Lending Certificate: Do you now about the Priority Sector Lending Certificate? What is Priority Sector? What is Priority Sector lending? What is Priority Sector Lending Certificate? If you know then just go this post for a quick revision. If you don’t then read this post thoroughly.  

Before going through this topic read about What is Priority Sector Lending. Click Here to read

What are Priority Sector Lending Certificates (PSLCs)

Concept With Example: You can understand this concept with an example. Say the Priority Sector Lending (PSL) Limit is 40%. Suppose a Bank X has lend 50% to Priority Sector i.e it has attained its Priority Sector Lending (PSL) limit. It is in surplus. There is a Bank Y, which has achieved only 30% of the Priority Sector Lending (PSL).

Now under this facility Bank X can sell its extra 10% lending to Bank Y in form of certificate. Hence the lending of Bank Y will also come to 40%. So in short, Bank X is selling the Priority Sector Lending Certificate to Bank Y.

Definition: It is a certificate to enable banks to achieve the priority sector lending target and sub-targets by purchase of these instruments in the event of shortfall and at the same time incentivize the surplus banks.

Note: There will be no transfer of risks or loan assets.

Eligible Buyers/Sellers: 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

Types of Priority Sector Lending Certificates

 There are four kinds of PSLCs :–

  1. PSLC Agriculture: Counting for achievement towards the total agriculture lending target.
  2. PSLC SF/MF: Counting for achievement towards the sub-target for lending to Small and Marginal Farmers.
  3. PSLC Micro Enterprises: Counting for achievement towards the sub target for lending to Micro Enterprises.
  4. PSLC General: Counting for achievement towards the overall priority sector target.

Amount eligible for issue: A bank is permitted to issue PSLCs upto 50 percent of previous year’s PSL achievement.

Expiry date: All PSLCs will expire by March 31st , irrespective of the date it was first sold. (Cycle- April 01 to March 31)

Lot Size: The PSLCs would have a standard lot size of ₹ 25 lakh and multiples thereof.

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