New Delhi [India], March 26 : The Reserve Bank of India (RBI) should include loans given to infrastructure projects--such as roads, ports, railways, airports, highways, and the energy sector--under priority sector lending (PSL) or exempt them from the calculation of Adjusted Net Bank Credit (ANBC) for PSL targets, suggests a report by State Bank of India (SBI)
The report highlighted that large banks often struggle to meet PSL targets. To address this issue, it recommends treating infrastructure loans similar to infrastructure bonds, which are already exempt when raised for funding infrastructure and affordable housing. This change, the report argued, will help banks manage their PSL requirements more effectively.
It said, "As big banks continue facing problems in achieving PSL targets, hence It would be a prudent move to include all infrastructure loans given to Road projects etc..... either as priority sector status or be exempt from calculation of ANBC for PSL".
The report suggested that the RBI should introduce PSL bonds, which banks can purchase to make up for shortfalls in meeting PSL targets. This will increase the availability of PSL instruments and provide banks with an alternative method to meet their obligations.
Additionally, the report proposed that purchases of Priority Sector Lending Certificates (PSLCs), which banks buy when they fall short of PSL targets, should be exempt from ANBC calculations. This exemption will ease the burden on banks and encourage more participation in PSL compliance.
The SBI report also recommended that loans provided under government schemes such as Pradhan Mantri Mudra Yojana (PMMY), PM SVANidhi, and PM Vishwakarma should be classified under micro-enterprises and weaker sections. This would help in channeling more credit to small businesses and informal sector workers.
The report further suggested that the RBI should create a separate "Climate Sustainability Finance" category under PSL. Investments made by banks in green bonds, ESG (Environmental, Social, and Governance) bonds, and similar instruments should be allowed under PSL classification. These investments could then be counted under the 18 per cent agriculture sub-target, encouraging banks to support sustainability projects.
Another recommendation is that deposits made in the Rural Infrastructure Development Fund (RIDF) should not be subject to risk weight and capital adequacy calculations (CRAR). Since these deposits are regulatory in nature, similar to Statutory Liquidity Ratio (SLR) requirements, they should be treated as sovereign deposits to reduce banks' financial burden.
These recommendations, as per the report, could provide significant relief to banks in meeting their PSL targets while boosting infrastructure development and sustainable finance in India.