At present, RBI has prescribed an enhanced target of 75% of adjusted net bank credit (ANBC) of an RRB for lending to the priority sector, against the target of 40% applicable to a commercial bank. RRBs sell their priority loan portfolio through priority sector lending certificates (PSLC) to commercial banks. They can sell these only after reaching the mandated 75% limit.
If RBI provides this relaxation, then RRBs will be able to sell their PSL portfolio once they achieve the 40% target as applicable for commercial lenders, a move that can potentially improve their profitability.
A government official said that discussions are on with RBI and banks.
RRBs have about 90% of portfolio under PSL and hence their net interest margins are low, in turn affecting their profitability.
“There have been representations from the banks that RRBs may be allowed to sell PSLCs in excess of 40% of PSLs subject to achieving their mandated target. This is being discussed,” said the above quoted official.
At present, lending towards eight sectors including agriculture, micro and small medium enterprises, export credit, housing, education, renewable energy and social infrastructure is considered eligible as priority sector loans.
“The RRBs are not able to monetise their PSLCs because of the regulatory norms. If they are permitted to sell PSLs above the level prescribed for commercial loans, it will increase their income provided they achieve the prescribed targets,” said a banker aware of the discussions.
At present, NABARD extends refinance at concessional rate of interest to RRBs for supplementing their resources for short-term and long-term lending. During 2020-21, NABARD disbursed a total refinance of ₹44,975 crore to RRBs.
RRBs have surpassed the prescribed target of lending to small and marginal farmers (SMFs) and weaker sections from 2018-19 to 2020-21. Most big lenders resort to buying PSLCs from RRBs to meet their regulatory requirements.
The total trading volume of PSLCs recorded a growth of 25.9% and stood at ₹5.89 lakh crore in 2020-21 as compared with 43.1% growth a year ago.