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State Bank of India’s investment in priority sector lending certificates (PSLCs) jumped 46 per cent year-on-year in FY23 to ₹2.02-lakh crore, in a bid to achieve the mandatory priority sector lending (PSL) target. Punjab National Bank’s (PNB) purchase of PSLCs shot up about three times to ₹18,500 crore in FY23 to meet the PSL target. The bank also sold PSLCs, with micro enterprise loans as underlying, amounting to ₹2,207 crore.
Peer public sector banks such as Canara Bank and Bank of Baroda stepped up direct lending to the priority sector and sold PSLCs to earn fee income.
As of March-end 2023, direct lending of SBI to the priority sector, which includes lending to agriculture, MSMEs, exports, education, housing, social infrastructure, and renewable energy, accounted for about 31 per cent of domestic advances (as of FY22-end).
Also read: SBI to raise up to ₹50,000 cr in FY24
But the ₹2.02-lakh crore investment in PSLCs ensured that the bank achieved the 40 per cent PSL target (calculated with reference to the advances position as at previous year March-end). SBI had invested ₹1.38-lakh crore in PSLCs in FY22.
The bank’s priority sector advances portfolio stood at about ₹7.26-lakh crore as of March-end 2023. Banks invest in PSLCs to meet shortfall in PSL target. The fee paid for purchase of PSLCs is treated as ‘expense’, and the fee received from the sale of PSLCs is treated as ‘other income’.
The Reserve Bank of India formulated the PSLC scheme to enable banks to achieve the PSL target and sub-targets by purchase of these instruments in the event of shortfall, and at the same time incentivise the banks with surplus portfolio, thereby enhancing lending to the categories under priority sector. These certificates are sold/bought in standard lot size of ₹25 lakh and multiples thereof.
Commission earned
Canara Bank sold PSLCs with the underlying comprising small and marginal farmer loans amounting to ₹64,075 crore in FY23. The public sector bank earned a commission of ₹1,154 crore via this route, per its latest annual report.
The bank said its PSL portfolio stood at 49.23 per cent of the adjusted net bank credit against the 40 per cent norm.
Bank of Baroda sold PSLCs (Small and Marginal Farmers) worth ₹1,000 crore in FY23. SBI seems to be pushing hard to do more direct priority sector lending, going by the co-lending tie-ups it has entered into with non-banking finance companies (NBFCs)/ housing finance companies (HFCs).
The bank has signed Memorandums of Understanding with 18 NBFCs/HFCs under its co-lending model to enhance its reach to the unserved and underserved populace, per its annual report.
Under this model, SBI has sanctioned loans to more than 1.52 lakh borrowers amounting to ₹865 crore, of which, more than 1.49 lakh accounts were sanctioned in completely digitised mode (loans up to ₹1 lakh).
The bank is actively looking to partner with agri-techs and start-ups to cater to the financial needs across the agriculture value chain.
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