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    Question

    How do Priority Sector Lending Certificates (PSLCs) help

    banks comply with RBIтАЩs priority sector norms while balancing credit risk?
    A They facilitate the direct purchase of loans, shifting the associated risks to the buyer bank. Correct Answer Incorrect Answer
    B PSLCs serve as tradable instruments where the ownership of the underlying loan is transferred. Correct Answer Incorrect Answer
    C They act as compliance tools, enabling banks with surplus PSL loans to monetize excess lending while allowing deficit banks to meet PSL targets. Correct Answer Incorrect Answer
    D These instruments reduce credit risks by offering guarantees for priority sector loans. Correct Answer Incorrect Answer
    E PSLCs provide banks with interest rate subsidies for loans issued in priority sectors. Correct Answer Incorrect Answer

    Solution

    тАв PSLCs are tradable instruments introduced by RBI in 2016 to deepen the priority sector lending market. тАв A bank that has surplus PSL loans can issue PSLCs and monetize its excess lending. тАв A bank that is short of PSL targets can purchase PSLCs to meet regulatory requirements. тАв Importantly, ownership of the underlying loans does not change, and credit risk remains with the originator bank. тАв 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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