RBI panel for raising priority sector lending cap to 50 per cent

While favouring direct cash transfers to farmers to pay any kind of interest subvention or debt waiver, a Reserve Bank of India (RBI) panel has recommended raising the priority sector lending (PSL) target to 50 per cent from the current 40 per cent.

"The committee recommends that the RBI revise the PSL targets and require banks to meet an adjusted PSL target of 50 per cent against the current requirement of 40 per cent," the panel headed by ex-ICICI Bank executive director Nachiket Mor said in a report on Tuesday.

It further said that districts and sectors should be weighed based on the difficulty in lending as far as PSL is concerned.

Favouring direct cash transfers to farmers, the panel said, "If the government does desire to provide relief in any form to the small farmer, it would be best carried out as a direct benefit transfer (DBT) to the bank accounts of the farmers and not through the mechanism of either interest subvention or debt waiver."

It also said this would ensure banks' ability to price loans in a sustainable manner with protection of credit discipline among its borrowers.

Making a case for inclusion of loans given to landless labourers and small and marginal farmers as part of direct agriculture, the report said investment by banks in bonds of institutions must qualify for PSL where wholesale lending to the same institutions already qualifies under the PSL norms.

It further said tax-free status of securitisation special purpose vehicles (SPVs) should be restored.

"The RBI should represent to the government to restore the tax-free status of securitisation SPVs as pass-through vehicles for tax treatment so as to create pathways for Wholesale banks to provide liquidity to other banks and financial institutions directly originating assets in priority sectors," it said.

As per the report, investment by banks for non-fund based limits like guarantees should qualify for PSL with some specifications, while equity investments by banks in complementary infrastructure within the PSL guidelines, such as rural warehouses, market yards, godowns, silos, and NBFCs in low financial depth districts should qualify this status.

"Equity investments by banks in private companies engaged in the task of installing and operating weather stations, or in creating markets for second-hand assets should be eligible for PSL treatment," it recommended.

It also recommended universal reporting to credit bureaus should be mandated for all loans, both individual and SME, but in particular SHG loans, 'kisan' credit cards, and general credit cards.