Priority Sector Lending Certificates (PSLCs)

Question 1

What are Priority Sector Lending Certificates (PSLCs)?

Answer 1

PSLCs are certificates that allow banks in India to trade in their Priority Sector Lending achievements. Overachieving banks can sell excess PSL achievements to banks that have fallen short of their targets.

Question 2

Why would a bank purchase a PSLC?

Answer 2

Banks purchase PSLCs to avoid penalties associated with failing to meet their Priority Sector Lending quotas. It’s a way to comply with regulatory requirements without directly extending loans to priority sectors.

Question 3

What happens if a bank cannot meet its PSL quota, even with the purchase of PSLCs?

Answer 3

The bank will need to deposit the shortfall amount into funds such as the Rural Infrastructure Development Fund (RIDF) or others as designated.

Question 4

What are some examples of sectors that fall under Priority Sector Lending?

Answer 4

Priority sectors include agriculture, small-scale industries, education, housing, export credit, and others as determined by the Reserve Bank of India (RBI).