RBI panel suggests hiking PSL target for foreign banks

An RBI panel today called for a steep 8 percentage points rise in the priority sector lending (PSL) target for foreign banks to 40% to bring them at par with the domestic banks, and proposed hike in education loan ceiling by Rs 5 lakh.

The PSL re-examining committee also came up with a slew of other recommendations such as doing away with the distinction between direct and indirect lending to the farm sector, whose total target has been retained at 18% for commercial banks.

"Limit under priority sector for loans for studies in India may be increased to Rs 15 lakh and Rs 25 lakh in case of studies abroad, from existing limit of Rs 10 lakh and Rs 20 lakh, respectively," the panel said in its report submitted to the RBI. It can be noted that foreign banks, whose interest in the country has shot up especially after the credit crisis in the developed world following the fall of the Wall Street giants in 2008, have been seeing the very concept of PSL as an operational impediment.

Committee chairman M V Nair, who also heads the state-owned lender Union Bank of India, defended his report saying the recommendations if implemented will in no way can be termed as anti-free trade as these recommendations comply with the existing regulations like the reciprocity pacts and the World Trade Organisation's views on respecting local laws.

Under the recommendations, which are open for public comments till March 31, foreign lenders will have to lend 15% each to exporters and to MSEs, with 7% allocation to micro businesses.