Question
How do Priority Sector Lending Certificates (PSLCs) help
banks comply with RBI’s priority sector norms while balancing credit risk?Solution
• PSLCs are tradable instruments introduced by RBI in 2016 to deepen the priority sector lending market. • A bank that has surplus PSL loans can issue PSLCs and monetize its excess lending. • A bank that is short of PSL targets can purchase PSLCs to meet regulatory requirements. • Importantly, ownership of the underlying loans does not change, and credit risk remains with the originator bank. • Thus, PSLCs serve purely as a compliance and market-driven balancing tool, ensuring efficient achievement of PSL norms without actual transfer of loan assets.
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