RBI panel for PSL at 50%; favours DBT

While favouring direct cash transfers to farmers to pay any kind of interest subvention or debt waiver, the RBI panel headed by Nachiket Mor on Tuesday recommended raising the priority sector lending (PSL) target to 50 per cent from the present 40.

"The committee recommends that the RBI revise the PSL targets and require banks to meet an adjusted PSL target of 50 per cent against the current requirement of 40 per cent," the report said.

It further said that districts and sectors should be weight-based on the difficulty in lending as far as PSL is concerned.

Favouring direct cash transfers to farmers, the panel said, "if the government does desire to provide relief in any form to the small farmer, it would be best carried out as a direct benefit transfer (DBT) to the bank accounts of the farmers and not through the mechanism of either interest subvention or debt waiver.”

The report said investment by banks in bonds of institutions must qualify for PSL where wholesale lending to the same institutions already qualifies under the PSL norms.It further said tax-free status of securitisation special purpose vehicles (SPVs) should be restored.

As per the report, investment by banks for non-fund based limits like guarantees should qualify for PSL with some specifications, while equity investments in complementary infrastructure within PSL guidelines, such as rural warehouses, market yards, godowns, silos, and NBFCs in low financial depth districts should qualify this status.

"Equity investments by banks in private companies engaged in the task of installing and operating weather stations, or in creating markets for second-hand assets should be eligible for PSL treatment," it recommended.

‘Abolish SLR norm’

An RBI panel also called for gradual abolition of statutory liquidity ratio, under which banks are bound to park a whopping 23 per cent of deposits in government securities and other liquid instruments saying the tool has "outlived its utility".

“It is clear that SLR (statutory liquidity ratio) as a prudential tool eventually needs to be removed," the Committee on Comprehensive Financial Services for Small Businesses and Low Income Households said in its report submitted on Tuesday.