rbi
This blog addresses frequently asked questions about Priority Sector Lending Certificates (PSLCs), including their validity, trading mechanisms, tax implications, and regulations set by the Reserve Bank of India (RBI). It aims to clarify various facets of PSLCs for banking institutions and market participants.
All PSLCs retain their validity until March 31st and will automatically expire on April 1st of the subsequent year.
While PSLCs can be issued for different durations, all certificates uniformly expire on April 1st.
Under Section 6(1)(o) of the Banking Regulation Act, as notified by the Government of India on May 4, 2016, PSLCs are classified as ‘goods’. Therefore, banks will determine tax implications related to PSLC transactions in accordance with applicable tax laws. Notably, current guidelines stipulate that participating banks incur no transaction charges or fees for utilizing the PSLC module on the e-Kuber portal.
There are four currently recognized categories of PSLCs:
Other classifications, such as PSLC – Weaker Sections or PSLC – Export Credit, are not authorized for trading.
Export Credit can contribute as part of the underlying assets for PSLC – General. Nevertheless, banks must ensure that the underlying portfolio meets priority sector classification standards when issuing PSLCs against Export Credit.
Foreign banks with fewer than 20 branches cannot use PSLC General to fulfill incremental lending targets outside the export sector, surpassing the overall limit of 32%. However, they can apply PSLC Agriculture, PSLC Micro Enterprises, and PSLC Small and Marginal Farmer (SF/MF) towards these obligations.
Banks are authorized to buy and sell PSLCs according to their requirements. The net balance of sold and purchased PSLCs must be reflected in the quarterly and annual priority sector reports. Banks need to consider the total outstanding portfolio and the net of PSLC transactions as of March 31st to ensure compliance with priority sector targets.
Should an RBI inspection determine that a previously traded PSLC is ineligible, the seller bears the responsibility for this misclassification. The buyer is not exposed to counterparty risk due to such declassification.
While there is no asset transfer involved in PSLC transactions, banks should consult the Master Circular on Priority Sector Lending dated July 1, 2015, for guidelines regarding the calculation of Adjusted Net Bank Credit (ANBC).
The buyer's payment to the seller for a PSLC is determined by market conditions, with no minimum or maximum fee established by the RBI.
Settlements for matched premiums will be processed in real-time through the e-Kuber portal, with participating banks’ current accounts being adjusted accordingly.
Trades will be matched anonymously via the e-Kuber portal, preventing buyers and sellers from choosing their counterparties. Partial matching may occur, depending on premium alignment and the availability of PSLC lots marked for sale or purchase.
The RBI has announced revised Master Directions on Priority Sector Lending effective April 1, 2025, superseding the 2020 guidelines. Notable changes include:
As of March 24, 2025, loans under PSLC – SF/MF will now contribute to several sub-targets: Small and Marginal Farmers, Weaker Sections, Non-Corporate Farmers, Agriculture, and the overall PSL target. This adjustment aims to streamline compliance and broaden lending coverage for small and marginal farmers.
This post provides an overview of essential aspects of PSLCs as regulated by the RBI. Market participants are encouraged to consult tax professionals or legal advisors to successfully navigate the complexities surrounding PSLC transactions.