Page 43 - Banking Finance JANUARY 2017
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ARTICLE
Objectives: Conclusion:
To enable the banks to meet PSL requirements and Once upon a time Priority sectors Lending was considered
allow leveraging of their comparative advantage as neglected sectors of economy. It is well known fact that
To give an option to the banks to come out of the in- these sectors contribute a lot for the growth of an economy.
vestment under RIDF (earns low returns to the banks) Due to one or the other reasons, most of the banks finds it
difficult in achieving the benchmarks stipulated by Reserve
To allow a more efficient implementation of the prior-
ity sector lending mandate Bank of India under PSL.
To separate the objective of transferring priority sec- We all know that resources available to the banks are not
tor obligations from the credit risk transfer and refi- uniform everywhere and expecting everyone to achieve the
nancing aspects, which are co-mingled in the Inter Bank uniform benchmarks under priority sector lending resulting
participation certificates (IBPC) in shortfall in achieving PSL targets.
To create innovative ways of earning fee based income
to banks Issue and purchase mechanisms of PSLCs are very good
opportunity for the banks not only in achieving the targets
Benefits: under PSL but, very good fee based income to the seller
PSLCs will make credit available at optimal cost due to banks which ultimately increases the profitability to the
market driven pricing mechanism banks.
No risk sharing mechanism, the loan would continue
Banks are somewhat comfortable in achieving Priority sec-
to be on the books of the original lender tor lending targets after the issue of revised guidelines on
It removes unnecessary price arbitrage and inefficiency priority sector lending guidelines with effect from
that bilateral transactions as exists in IBPCs 23.04.2015. No doubt that financing to PSL sector by the
Indian banks brought a change in the economy, yet it is not
It increases fee based income to the bank (Seller) and
free from some issues and inconveniences.
thereby increases the profitability to the banks
It adds efficiency in meeting the targets on priority It is the long awaited need of the hour that banks have been
sector lending given an innovative creative approach by the regulators in
It creates a deep and liquid forward market achieving the PSL targets which will facilitates banks in sus-
taining nation's priority.
No need for investing under RIDF due to which drain
on the bank's profitability
References:
Getting regulatory clearances/approvals from RBI/ 1. A Hundred Small Steps -Chapter 5 on the Report of the
NABARD etc is easy committee on financial sector reforms 2008
It creates a kind of competition among the banks 2. C S Saurav Malpani, Priority Sectors lending Certificates -
Long awaited need of the industry, March 3'2015
It indirectly enhances the credit culture among the
banks 3. RBI circular dated 07.04.2016 on 'Priority sector lending
certificates'
No additional cost associated with managing such as-
sets 4. RBI circular dated 07.04.2016 "RBI - launches portal for
trading PSLCs"
Saving on the part of acquiring bank as servicing fee
5. Sandeep singh, The Indian Express dated 12.04.2016
for managing such assets gets eliminated
"Banking on reforms"
No maximum limit or ceilings on the amount of PSLCs
6. www.fafral.org.in, speech delivered by U S Paliwal
that could be purchased for achievement of various
7. www.iibf.org.in
targets
BANKING FINANCE | JANUARY | 2017 | 43
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