SBI and PNB’s investment in priority sector lending certificates surge in FY23

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State Bank of India Investment in Priority Sector Lending Certificates (PSLCs) jumped by 46 per cent year on year in FY23 to ₹ 2.02 crore, in a bid to meet the Priority Sector Lending (PSL) mandatory target. Punjab National Bank (PNB) Purchase of PSLCs increased nearly three times to Rs 18,500 crore in FY23 to meet PSL target. The bank has also sold PSLCs, with core small business loans, amounting to ₹2,207 crore.

Peer public sector banks such as Bank of Canara and Bank of Baroda promoted direct lending to the priority sector and sold PSLCs to earn fee income.

As of the end of March 2023, direct lending to the SBI for the priority sector, which includes lending to agriculture, MSMEs, exports, education, housing, social infrastructure, and renewable energy, accounted for about 31 percent of domestic advances (as of fiscal year 22). -end).

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But an investment of ₹2.02-lakh crores in PSLC ensures that the bank has achieved the PSL target of 40 per cent (calculated with reference to the advances position as at the end of March of the previous year). SBI invested ₹1.38-lakh crores in PSLCs in FY22.

The bank’s priority sector advances portfolio was around INR 7.26 crore as of end March 2023. Banks are investing in PSLCs to meet the shortfall of the PSL target. Fees paid for the purchase of PSLCs are treated as “expenses,” and fees received from the sale of PSLCs are treated as “other income.”

The RBI has formulated the PSLC scheme to enable banks to achieve the PSL target and sub-targets by buying these instruments in case of deficit, and at the same time incentivizing the banks with excess portfolio, thus enhancing lending to groups under priority sector. These certificates are sold/buyed in a standard lot size of 25 Lakh and its multiples.

Commission earned

Canara Bank PSLCs with tacit consisting of small and marginal farmer loans amounting to ₹64,075 crores were sold in FY23. The public sector bank earned a commission of ₹1,154 crores via this route, according to its latest annual report.

The bank said its PSL portfolio amounted to 49.23 percent of adjusted net bank credit against 40 percent.

Bank of Baroda PSLCs (Small and Marginal Farmers) sold worth Rs 1,000 crore in FY23. SBI seems to be pushing hard to do more direct lending to the priority sector, through syndicated lending links it has with Non Bank Finance Companies (NBFCs)/ Housing finance companies (HFCs).

The bank has signed memorandums of understanding with 18 NBFC/HFC companies under the joint lending model to enhance its outreach to underserved and underserved populations, according to its annual report.

Under this model, the SBI has sanctioned more than 1.52 lakh borrowers to the tune of Rs. 865 crores, of which more than 1.49 lakh accounts sanctioned in all-digital mode (loans of up to INR 1 lakh).

The bank is actively looking to partner with agrotech and start-ups to meet financial needs across the agricultural value chain.