There are two open ended issues relating to priority sector lending that I want to raise. The first relates to a scheme of Priority Sector Lending Certificates (PSLCs) recommended by the Raghuram Rajan Committee. The idea is to allow banks to fulfill their PSL target by buying off PSL assets from other institutions through a PSLC.
It is argued that the PSLC system will enhance efficiency as it will allow banks with a comparative advantage in PSL to exploit that advantage by overachieving on their target and selling the “surplus” to other banks which have a comparative disadvantage. 22. The PSLC Scheme has some merits.