← Policy & Regulation: Financial & market regulation (all topics)
PSLC trading
What it is
Priority Sector Lending Certificates let a bank that has exceeded its priority sector targets sell the excess as a tradable certificate to a bank that has fallen short. Only the compliance obligation transfers - the underlying loan, its risk and its returns stay with the originator
Certificates are traded on RBI's e-Kuber platform in four categories, expiring each 31 March
Impact on industries
- Elegant separation of origination from obligation - a bank with rural reach monetises its surplus while a bank without that network meets its target without originating loans it cannot underwrite
- Fee income is essentially pure margin for the seller, since no capital is consumed and no credit risk is transferred
- Premium pricing is volatile and driven by aggregate system shortfall, so the income line is unpredictable and typically peaks near the March expiry
- It satisfies the letter of priority sector policy without necessarily expanding credit to underserved borrowers, since the same loans simply count for a different bank