Update on Priority Sector Lending Certificates

Tradable Priority Sector Lending Certificates was first proposed by A.M. Godbole in his article "How to lend more to the poor" (Mint, 28 March 2007). A.M. Godbole had called tradable Priority Sector Lending Certificates as 'social credits'. On 7 April 2016 the portal for trading Priority Sector Lending Certificates was launched by the Reserve Bank of India. Within twelve months of the launch of the Priority Sector Lending Certificates portal for trading, a total of INR 430.1 billion (US$ 6.63 billion as of 31 March 2017) of PSLC SF/MF and PSLC General by volume was traded.

PSLC are issued by the banks that have overreached their priority Sector lending targets. Thus these can be issued only up to the extent of their over lending to the specific sectors. Buyers of these are usually those banks who could not meet their PSL targets. Banks can buy and sell PSL credits to manage their priority sector lending requirements. Priority Sector Lending Certificates is a tool for promoting comparative advantages among banks while they meet their priority sector lending obligations in India. Banks with a comparative advantage in lending to the priority sector should earn priority sector lending certificates [social credits] while those falling short of the target would be required to buy priority sector lending certificates [social credits].

The PSLCs can be traded using the RBI’s e-Kuber platform.

Sellers and buyers of PSLCs are: Scheduled Commercial Banks, Regional Rural Banks, and Urban Co-operative Banks who have originated PSL eligible category loans subject to such regulations as may be issued by the Bank.
Banks can issue four typesof PSLCs including three subsector PSLCs- agriculture, small and marginal farmers, micro enterprises and one PSLC for general.
PSLC [social credits] will help banks to focus and plan better.

The goal of Priority Sector Lending Certificates is to create market-efficiency in priority sector lending to increase employment, create basic infrastructure and improve competitiveness of the economy, thus creating more jobs Priority Sector Lending Certificates is a method for directing credit.

GST on PSLC - Notification no.11/2018 Central Tax (Rate) of the CGST dated 28^th May 2018
The government has clarified that PSLC are in the nature of goods which will also have consequence on Bitcoins, Carbon credits and the supply of PSLC by a registered person to a registered person will be liable to be taxed at the rate of 18 % and will be taxed under sec 9(3) under Reverse charge.

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Update on Priority Sector Lending Certificates

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