Pvt Banks Lap Up PSLCs for Pri­or­ity Loans

In­stru­ment es­ti­mated to have re­ceived trades worth .₹ 40k crore in first quar­ter

The Economic Times - - Economy: Macro, Micro & More - At­madip.Ray @times­group.com

Kolkata: The new pri­or­ity sec­tor lend­ing cer­tifi­cates (PSLCs) — which are be­ing traded through a Re­serve Bank of In­dia-pro­moted plat­form — ap­pear to have caught the fancy of trea­sury heads of banks, es­pe­cially in Citibank In­dia, HDFC Bank and Yes Bank, with the PSLC mar­ket es­ti­mated to have seen .₹ 40,000 crore worth of trades in the first quar­ter.

Banks, with deficit in pri­or­ity sec­tor loans, can buy PSLCs from banks with sur­plus pri­or­ity loans to bridge the gap for a fee and without any real trans­fer of as­sets. This in­stru­ment, in­tro­duced last fis­cal, has sub­sti­tuted the com­plex se­cu­ri­ti­sa­tion or di­rect as­sign­ment struc­tures for buy­ing or sell­ing pri­or­ity sec­tor loans. PSLC is be­ing traded ex­clu­sively be­tween banks while non-banks aren’t al­lowed to do so.

Ex­perts feel that the new mech­a­nism may bring some chal­lenges to the se­cu­ri­ti­sa­tion mar­ket, at least ini­tially, with the first quar­ter vol­ume of se­cu­ri­ti­sa­tion fall­ing about 15% to .₹ 15,000 crore, com­pared with .₹ 17,000 crore in the year-ago pe­riod, ac­cord­ing to an es­ti­ma­tion by Crisil.

“The in­tro­duc­tion of PSLCs in the early part of fis­cal 2017 is es­ti­mated to have had a neg­a­tive im­pact on both se­cu­ri­ti­sa­tion and in­ter-bank par­tic­i­pa­tion cer­tifi­cate (IBPC) vol­umes. Given the ease of pur­chase and ab­sence of risk trans­fer, PSLCs quickly gained cur­rency,” Crisil said.

“There has been sub­stan­tial de­mand for PSLC from pri­vate banks and for­eign banks, es­pe­cially the for­eign ones with less than 20 branches as they are man­dated to in­crease their pri­or­ity sec­tor loan pro­por­tion by 2% an­nu­ally till 2020,” said Ajit Velonie, di­rec­tor at Crisil Rat­ings.

Last fis­cal, about .₹ 49,800 crore of PSLCs were traded among banks — by­pass­ing the se­cu­ri­ti­sa­tion and IBPC routes — to meet their pri­or­ity-sec­tor lend­ing man­date. De­spite this, se­cu­ri­ti­sa­tion vol­ume last fis­cal grew 47% year-on-year to .₹ 1,02,500 crore, rid­ing on trans­ac­tions of non-pri­or­ity sec­tor loans.

Se­cu­ri­ti­sa­tion, on the other hand, is done through pooling of loans and sell­ing them to an­other lender by is­su­ing pass through cer­ti­fica- tes is­sued by trusts or spe­cial pur­pose ve­hi­cles, or sell­ing them bi­lat­er­ally via a process called di­rect as­sign­ment of loans.

“PSLC is pre­ferred over other in­stru­ments, as they al­low banks to lever­age on their strength in a par­tic­u­lar seg­ment of pri­or­ity lend­ing such as agri lend­ing, small farmer fi­nanc­ing and MSMEs (Mi­cro, Small & Medium En­ter­prises). It also in­cen­tivises banks hav­ing sur­plus in their lend­ing to pri­or­ity sec­tor cat­e­gories by way of earn­ing pre­mium on sell­ing the PSLC,” said Su­mit Gupta, Yes Bank’s na­tional head for busi­ness & ru­ral bank­ing.

No cap­i­tal pro­vi­sion­ing is re­quired as this is an off bal­ance sheet in­vest­ment, whereas IBPC, se­cu­ri­ti­sa­tion and DA re­quire cap­i­tal pro­vi­sion­ing, Gupta said. “Fur­ther­more, the trans­ac­tions are com­pletely dig­i­talised and en­ables mar­ket dy­nam­ics to de­cide on the pric­ing of the in­stru­ments.”

The Crisil study showed that around 55% of the PSLCs traded are re­lated to loans to small and mar­ginal farm­ers. Band­han Bank, with about 90% of their .₹ 21,400 crore loan port­fo­lio be­ing con­trib­uted by mi­cro loans, has sold loans worth .₹ 1,000 crore us­ing PSLCs in the past two quar­ters. “The big­gest ad­van­tage is our port­fo­lio does not get re­duced even af­ter sell­ing the PSLCs,” its man­ag­ing di­rec­tor Chan­dra Shekhar Ghosh said.

Ex­perts feel that the new mech­a­nism may bring some chal­lenges to the se­cu­ri­ti­sa­tion mar­ket, at least ini­tially

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.