PSL Shortfalls: RIDF and UIDF Flashcards
What does PSL stand for, and what is its purpose?
PSL stands for Priority Sector Lending. Its purpose is to ensure that banks dedicate a specified portion of their lending to sectors considered important for national development, such as agriculture, small businesses, education, and affordable housing.
What happens if a bank fails to meet its PSL targets?
If a bank cannot meet its PSL targets, it has to deposit the shortfall amount into a designated fund as determined by the Reserve Bank of India (RBI).
What is the Rural Infrastructure Development Fund (RIDF)?
The RIDF is a fund established in 1995-96 and managed by NABARD (National Bank for Agriculture and Rural Development). It receives deposits from banks that have shortfalls in their PSL targets. The RIDF’s purpose is to finance rural infrastructure projects in areas like agriculture and social development initiatives.
What is the Urban Infrastructure Development Fund (UIDF)?
The UIDF was announced in the 2023 Budget and is managed by the National Housing Bank (NHB). Its purpose is to support urban infrastructure projects, primarily in tier-2 and tier-3 cities. Banks with PSL shortfalls will contribute to this fund.
What are the implications for banks that deposit funds into RIDF and UIDF due to PSL shortfalls?
While banks earn interest on the deposited funds, the interest rate is usually linked to the Bank Rate, which might be lower. Additionally, this money gets locked into long-term infrastructure projects.
