RBI issues trading norms for PSLCs on lines of carbon credit

Mumbai: Banks can buy Priority Sector Lending Certificates (PSLCs) -- on the lines of carbon credit trading -- with a minimum lot size of Rs 25 lakh to meet shortfall in priority sector lending targets.

Issuing detailed guidelines, RBI today said these instruments will be traded through its e-Kuber portal.

The goal of PSLCs is to allow market mechanism to drive priority sector lending by leveraging the comparative strength of different banks.

The purpose is "to enable banks to achieve priority sector lending target and sub-targets by purchase of these instruments in the event of shortfall and at the same time incentivise surplus banks, thereby enhancing lending to the categories under the priority sector", the central bank said.

The seller will be "selling fulfilment of priority sector obligations and the buyer would be buying the same".

"There will be no transfer of risks or loan assets. The PSLCs will be traded through the CBS portal (e-Kuber) of RBI," it said.

There will be four kinds of PSLCs -- agriculture, SF/MF, micro enterprises and general.

A bank with a shortfall in achievement of any sub-target (say SF/MF, micro), "will have to buy the specific PSLC to achieve the target". However, if a bank has a shortfall in achievement of only the overall target, as applicable, it may buy any of the available PSLCs.

Priority sector comprises several categories, including agriculture and micro enterprises. In addition to the overall target and sectoral targets for lending to agriculture and micro enterprises, banks are required to achieve specified sub-target for lending to small farmers (SF) and marginal farmers (MF).

Normally, PSLCs will be issued against the underlying assets. However, with the objective of developing a strong and vibrant market for PSLCs, a bank is permitted to issue PSLCs up to 50 percent of the previous year's PSL achievement without having the underlying in its books, RBI said.

"There will be no transfer of credit risk on the underlying as there is no transfer of tangible assets or cash flow," it added.

While releasing the instructions, RBI Deputy Governor S S Mundra also launched a platform to enable trading in the certificates through e-Kuber.

All commercial banks (including regional rural banks), urban co-operative banks, small finance banks -- when they become operational -- and local area banks are eligible for participation.