The basic function of the banks is to take deposits from the public at larger and lend to the needy sections of the society. This is okay, but what if they lend only to the politically motivated corporate and business houses? How will the sustained economic growth be possible with that type of scenario? Then comes the Reserve Bank of India, which prescribes the PSL targets to banks. Now it looks good. So let’s start the Priority Sector Lending.

Priority Sector Lending is an important role given to the banks by the RBI to lend a specific portion of their lending to the needy sections like agriculture, education, weaker sections, housing, renewable energy and loans to the SC/ST/women etc. RBI has prescribed different limits on different types of banks as per their operating area, e.g. it is 75 per cent of the total lending on RRBs and Small Finance Banks, while it is just 40 per cent of the total lending on the Public and Private Sector Banks. The banks are obliged to comply with the targets otherwise that portion of the money will go to the Rural Infrastructure Development Fund (RIDF) for a longer period of time which is managed by the NABARD.

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Sections under the PSL

The RBI has selected some sections for Priority Sector Lending and these as shown in the table below:

Priority Sector Lending Certificates

Sometimes it becomes impossible for banks to reach the PSL targets set for the different sections due to some geographical constraints. Let a bank has not many branches in the rural area, then it may be possible that there may be a shortfall in its lending to the agriculture sector under the PSL target. If it happens then the money will go to the RIDF fund of the NABARD, but a bank will want to avoid it because funds will come back to the bank after a longer time period in this scenario. Is there any other option? Yes, now there is an option, of course, the PSL Certificates.

A PSL Certificate is a certificate which any bank having a shortfall in its PSL target can purchase it from another bank which has given more money under the PSL than the target. The PSL Certificates are traded on the RBI’s E-Kuber platform and the expiry date of these certificated is 31st March, means the end of financial year. The PSL Certificate comes under different categories as the requirement of the banks. These are in the figure below:

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