Why is PSL needed?

Why is PSL needed?

PSL is designed to promote the development of weaker sections within the country, thereby supporting the economy in India. The sub-target sectors of PSL include agriculture, which should account for 18% of the total (with a caveat that 8% of that goes to small farmers), and 7.5% should go to small businesses.

Why priority sector lending is important?

Priority Sector means those sectors which the Government of India and Reserve Bank of India consider as important for the development of the basic needs of the country and are to be given priority over other sectors. The banks are mandated to encourage the growth of such sectors with adequate and timely credit.

What is meant by priority sector lending certificate?

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.

What is the PSL target for domestic banks?

40 per
For domestic commercial banks (excluding regional rural banks and small finance banks) and foreign banks with 20 branches and above, the PSL target is 40 per of so-called Adjusted Net Bank Credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposures (CEOBE), whichever is higher.

What is the PSL target for agriculture as set by RBI?

The applicable target for lending to the non-corporate farmers for FY 2021-22 will be 12.73% of ANBC or CEOBE whichever is higher. All efforts should be made by banks to reach the level of 13.5 percent of ANBC (erstwhile target for direct lending to agriculture sector).

Who can issue PSL certificate?

When banks overreach their PSL targets and need additional funding to raise funds for the priority sectors, they are able to issue PSL certificates (PSLCs) only to the extent of the amount banks are allowed to lend in that specific sector. These certificates can be traded on RBI’s e-Kuber platform.

Do cooperative banks have PSL?

UCBs have to increase their PSL portfolio – comprising loans to agriculture, micro, small and medium enterprises, export credit, education, housing, social infrastructure, among others – so that it accounts for 75 per cent of their advances by March 2024.

Is PSL applicable to foreign banks?

Clarification: Foreign banks with less than 20 branches are not allowed to buy PSLC General for achieving their 8% target of lending to sectors other than exports. However, such banks are allowed to buy PSLC Agriculture, PSLC Micro Enterprises and PSLC Small and Marginal Farmer for the same.

How much is PSL target for banks in India?

The overall priority sector lending (PSL) target for UCBs stood at 40% of the adjusted net bank credit (ANBC) or credit equivalent amount of off-balance sheet exposure (CEOBSE), whichever is higher.

What is non PSL?

Non-Priority Sector lending is the sector towards which financial institutions are always ready to lend credit. It attracts finance every time. It covers all the remaining sectors which are other than PSL.

What is the provision for PSL in banks?

The provision for PSL depends on how much loans banks extend to the priority sectors. Banks take adequate steps to meet the target. In case of a shortfall, they sometimes show off-balance sheet items like derivative instruments to show their PSL accomplishments.

Why is PSL important to the housing sector?

Housing as a priority sector An important part of PSL for banks is the housing sector. While possessing a house is a dream for most people, many are not able to realise their dream due to difficulties in availing of mortgage. To help such people, new home ownership schemes are kept under the purview of PSL.

What is the minimum PSL required by RBI for a bank?

According to RBI guidelines, domestic and foreign banks with 20 or more branches are required to extend at least 40 per cent of their adjusted net credit as PSL, while those with fewer than 20 branches need to maintain PSL of 32 per cent.

What is meant by Priority Sector Lending?

Priority Sector refers to those sectors of the economy which may not get timely and adequate credit. Priority Sector Lending is an important role given by the Reserve Bank of India (RBI) to the banks for providing a specified portion of the bank lending to few specific sectors.