SFBs to be major suppliers of PSL certificates by FY20

SFBs need to maintain 75% of adjusted net bank credit as their PSL target

Small finance banks (SFBs) are expected to be major suppliers of priority sector lending certificates (PSLCs) worth Rs 9,000-19,000 crore by 2019-20. They might also engage in off-balance sheet transactions such as securitisation for priority-sector loans worth Rs 6,000-40,000 crore by FY20, depending on deposit mobilisation. This assumes SFBs will maintain the current levels of PSL-qualifying loans. SFBs need to maintain 75 per cent of adjusted net bank credit as their PSL target.

An analysis of portfolios indicates that around 90 per cent of the portfolio of most SFBs qualifies under PSL and 34 per cent qualifies as agriculture and small-and-marginal-farmer categories.

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SFBs are also likely to grow their assets under management by about 25 per cent (compounded annual growth rate) by FY20.

A trading platform for PSLCs has the potential to provide the buyers, especially scheduled commercial banks, market-linked tools to cover priority-sector shortfalls without facing origination and servicing challenges of PSL.

An effectively priced PSLC market could exert downward pressure on the spreads that non-banking financial institutions and other sellers make on the securitised products.  PSLCs are expected to be priced at one to three per cent annually of the amount of the certificates issued. The pricing would depend on a number of factors, including the PSL sub-segment deficit of the buyer and the overall demand and supply.