Raising priority sector lending target for regional rural banks will ‘affect bottomline’

K Ram Kumar | | Updated on: Jan 19, 2018


There will hardly be any excess PSL loans to sell to commercial banks: officers’ body

The 25 per cent increase in the priority sector lending target for regional rural banks (RRBs) has not gone down well with them.

These banks want the target to be brought on par with commercial banks as more number of players have either emerged (Bandhan Bank and IDFC Bank) or are in the process of emerging (10 small finance banks) in the banking space which can share the responsibility of lending to specific segments of the economy.

According to Reserve Bank of India’s revised guidelines on priority sector lending (PSL), with effect from January 1, 2016, RRBs have to meet a higher PSL target.

Under the revised target, 75 per cent of their total loans have to be given to the priority sector, against 60 per cent earlier. Commercial banks have priority sector lending target of 40 per cent.

Priority sector lending includes loans given to agriculture, micro, small and medium enterprises, education, housing, weaker sections, social infrastructure and renewable energy segments. The issue of cutting the PSL target was discussed at a review meeting of RRBs in mid-January.

The meeting, among others, was attended by the chairmen of RRBs, and senior officials from the Finance Ministry, the RBI and National Bank for Agriculture and Rural Development.


The Centre holds 50 per cent shareholding in all RRBs. The government of the respective state where an RRB mainly operates, and its sponsor bank, hold 35 per cent and 15 per cent, respectively.

At the meeting, representatives of RRB also highlighted the fact that following the steep increase in the PSL target it would be well-nigh impossible to sell excess PSL loans to scheduled commercial banks. This, in turn, could affect their profitability.

According to SK Bhattacharjee, General Secretary, All-India RRB Officers’ Federation, the revised PSL guidelines for RRBs defy logic. “It seems the authorities want only RRBs to shoulder the burden of PSL.

“Going by the revised norm for RRBs, they will not be left with any excess PSL loans to sell to commercial banks. This will adversely affect their bottomline.”

Bhattacharjee said instead of burdening RRBs with a higher PSL target, the authorities would do well to closely monitor the credit-deposit ratio (the amount of loans a bank gives from the deposits it mobilises) of private sector banks in rural areas.

He added that this ratio is dismal in the case of private sector banks.

Published on March 09, 2016
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