RBI launches window for banks trading in priority lending certificates

Reserve Bank of India (RBI) has launched a trading window on its core banking solutions (CBS) portal e-Kuber, to enable scheduled commercial banks to trade in priority sector lending certificates (PSLCs), and also issued instructions on trading in these certificates.

While releasing the instructions, S S Mundra, deputy governor of RBI, said all scheduled commercial banks (including regional rural banks), urban cooperative banks, small finance banks (when they become operational) and local area banks are eligible to participate in the trading.

RBI said four kinds of PSLCs, including those related to agriculture, small and marginal farmers, micro enterprises and general, can be bought and sold via the platform.

The certificates will come in a standard lot size of Rs25 lakh and its multiples. There will be no transfer of credit risk on the underlying and the settlement of funds will be done through the e-Kuber portal.

Reserve Bank of India comprehensively revised the priority sector guidelines in April 2015, which provide for the introduction of PSLCs as a mechanism to incentivise banks having surplus in their lending to different categories of priority sector.

On lines of carbon credit trading, the goal of PSLCs is to allow market mechanism to drive priority sector lending by leveraging the comparative strength of different banks.

For instance, a bank with an expertise in lending to small farmers can over perform there and get benefit by selling its over performance through PSLCs. Another bank that is better at lending to small industry can buy these certificates while selling PSLCs for micro enterprise loans.