MUMBAI: The Reserve Bank has strengthened the priority sector lending (PSL) compliance norms, mandating external auditor certificates from intermediaries to prevent double-claiming of loans, a move comes within two days of two leading private sector banks disclosing that the regulator has found mismatches in their PSL classification of agri loans and asking them to provide additional provisions.
By tightening of the norms, the RBI aims to ensure credit flows to priority sectors by enhancing monitoring and internal controls.
It can be noted that last Saturday HDFC Bank and ICICI Bank had admitted that they were directed by RBI to provide additional one-time standard provision of Rs 500 crore and Rs 1,283 crore respectively in the December quarter accounts, for misclassifying some of their agri-related accounts as PSL loans, but in fact were not meeting the SPL criteria.
The new the compliance framework requires all intermediary lenders—microfinance institutions, non-bank finance companies and housing finance companies—to furnish external auditors’ certificates ensuring that no loan is simultaneously claimed as priority sector by more than one bank.
The new directive comes from after the RBI amended the ‘directions on priority sector lending - targets and classification, issued today.
To ascertain priority sector status of the underlying portfolio, banks may rely on a combination of any external auditors’ certification provided by the originating entity and conduct of sample check by their own staff or by an auditor for the purpose. This may be specified in their internal policy,” the amended master direction said Monday.
The lenders will be permitted to avail of the PSL classification for the loans made to NBFCs, as long as the assets financed out of such loans are PSL eligible assets. This dispensation to the lending banks would be extended only up to the extent of actual outstanding balance supported by existing underlying assets as on the opening balance sheet of the SFB, and only till repayment of underlying loans.
The new norms also allows banks to treat export credit to agriculture and MSMEs as PSL loans in the respective categories and subject to the aggregate limits mentioned therein.
While domestic commercial banks have the PSL target at 40% of their foreign banks with 20 branches and above foreign Banks with less than 20 branches Regional Rural Banks Small Finance Banks
Loans disbursed by banks to MFIs are also eligible for categorisation as PSL under respective categories--agriculture, MSME, social infrastructure and others, provided the MFIs adhere to the RBI conditions and banks obtain external auditors’ certificates from MFIs confirming that on-lending benefit in respect of these loans has not been claimed from any other bank”
“Banks shall obtain external auditors’ certificates from the NBFCs confirming that on-lending benefit in respect of such loans has not been claimed from any other bank,” it said, adding bank credit to housing finance companies, approved by NHB for their refinance, for on-lending for the purpose of purchase/construction/ reconstruction of individual dwelling units or for slum clearance and rehabilitation of slum dwellers, will also be eligible for PSL classification subject to an aggregate loan limit of Rs 20 lakh per borrower.
Banks shall maintain necessary borrower-wise details of the underlying portfolio and obtain external auditors’ certificates from the HFCs, confirming that on-lending benefit in respect of such loans has not been claimed from any other bank, it added
Banks are also permitted to enter into co-lending arrangements to meet PSL targets.
The data on priority sector advances shall be furnished by banks at quarterly and annual intervals as per the respective reporting format, within fifteen days and one month, respectively from the end of each quarter and financial year, it said.
The regulator has also banned service charges on PSL loans (including guarantee fees of credit guarantee schemes), and ad hoc service charges/inspection charges shall be levied on priority sector loans up to Rs 50,000. In the case of eligible priority sector loans to SHGs/JLGs, this limit will be applicable per member and not to the group as a whole.