Home / Industry / Banking /  Demand for priority sector loans set to rise

MUMBAI : Demand for priority sector loans are set to rise with the pick up in credit offtake and the impending merger of HDFC with HDFC bank. 

According to a report by Motilal Oswal released on Friday, trading volume of priority sector lending certificate (PSLCs) rose 12.4% to 6.6 trillion in fiscal year 2022 as compared to a growth of 25.9% in FY21. 

Over the past few years, the top private banks have grown their PSL book faster than aggregate loans. The PSL loans for the top four Banks, barring ICICI Bank, have grown faster than overall loans due to slower growth in the corporate loans. Public Banks too, barring Punjab national Bank, have witnessed a higher growth trend in PSL advances.

Among private sector banks, the gap between growth in PSL loans and total advances is highest for Axis Bank, followed by Kotak Mahindra Bank and Indusind Bank, said the report. 

PSL refers to the mandatory loans given by banks to small and marginal farmers and economically weaker sections. Banks have to lend at least 40% of their loan to PSL category while small finance banks (SFBs) are required to extend 75% of its Adjusted Net Bank Credit (ANBC) to the sectors eligible for classification as PSL by the Reserve Bank. Failure to meet this lending will attract penal charges.

On asset quality, PSL portfolio of private banks is better placed compared to their public sector banks owing to former’s stronger underwriting skills. Gross non performing assets (GNPA) for the priority sector loan book of large private banks is in the 1.9-2.7% range while for PSU banks NPAs in PSL portfolio varies between 7.5%-19.9%, the report added. 

In terms of buying and selling priority sector lending certificates, private Banks are far more active as compared to PSU Banks to meet their PSL targets.

While most banks meet the broad PSL norms, the deficit is plugged by purchasing PSLCs for a fee or putting money in Rural infrastructure development. fund (RIDF) deposits.

According to the report, HDFC bank was the biggest buyer of PSLC in FY22 among private sector banks while other larger Banks were net sellers. Within PSU Banks, SBI was the biggest buyer of PSLC while Canara bank and Indian Bank were prominent sellers.


Gopika Gopakumar

Gopika Gopakumar has worked for over 15 years as a banking journalist across print and television media. Her expertise lies in breaking big corporate stories and producing news based TV shows. She was part of the 2013 IMF Journalism Fellowship Program where she covered the Annual & Spring meetings of the International Monetary Fund in Washington D.C. She started her career with CNBC-TV18, where she also produced a news feature show called Indianomics and an award winning show on business stories from South India called Up South. She joined Mint in 2016.
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