RBI strengthens priority sector lending oversight, Pg15

Key Highlights:

• RBI amended Priority Sector Lending (PSL) guidelines focusing on Adjusted Net Bank Credit (ANBC) computation, asset classification, and PSL exposure reporting.
• Amendments align PSL norms with Resource Raising Norms Directions, 2025, impacting treatment of exemptions for infrastructure and affordable housing bonds.
• ANBC calculation now includes a detailed formula for incremental advances from FCNR-B and NRE deposits, with strict capping.
• NBFCs, HFCs, and NCDC must provide external auditor certificates for PSL-eligible utilization to prevent double-claiming.

Detailed Insights:

• The amendments aim to enhance operational clarity, transparency, and governance within the PSL framework.
• Banks can issue unsecured, rupee-denominated bonds with a minimum maturity of 7 years, excluded from CRR and SLR requirements.
• The deduction from ANBC for incremental advances from FCNR-B and NRE deposits is disallowed if the incremental figure is zero or negative.
• Loans to NCDC are now PSL-eligible, subject to quarterly certification by CAG-empanelled auditors, with an overall on-lending cap at 5% of the previous year’s PSL.
• The revisions update the methodology for calculating credit equivalent of off-balance sheet exposures, aligning with the Large Exposures Framework.

Key Concepts Involved:

• Priority Sector Lending (PSL): Directing a specified portion of bank credit to sectors crucial for development.
• Adjusted Net Bank Credit (ANBC): A measure used to determine the base for calculating PSL targets.
• Cash Reserve Ratio (CRR): The percentage of a bank's total deposits required to be maintained with the RBI.