No plan to label infra lending as PSL: RBI

RBI Deputy governor KC Chakrabarty today ruled out classifying banks' advances to infrastructure sector as priority sector lending (PSL) saying there is enough credit flow to this critical sector to even make the central bank worried.

"I have no problem in banks lending to infrastructure companies, but don't classify that as priority sector lending," Chakrabarty told reporters, on the sidelines of a banking summit organised by the industry lobby Ficci and the Indian Banks Association here. However, he added that small-ticket lending to the infrastructure sector can alone be classified as priority sector, provided it meets the required norms.

Explaining further, Chakrabarty said there is no problem of credit flow to the infrastructure sector, which is estimated to require investments of over USD 1 trillion during the 12th Plan period starting this fiscal. The credit flow to the infra sector, which involves longer gestation projects, from banks worries the Reserve Bank due to the likely asset liability mismatches, he said. "Infrastructure has no problem of credit. In fact, we are worried that banks are giving too much credit to infra companies," he said, without pointing their exact concerns.

Even after coming out with the final guidelines on priority sector lending norms in July after the customary consultative process, Governor D Subbarao had said during July 30 credit policy that the central bank would be revisiting the norms after a slew of bankers, especially large foreign banks, expressed reservations.

The bankers' reservation include bringing a foreign bank with over 20 branches at par with domestic ones and making them set aside 40 percent of credit as PSL.

The RBI brass met bank chiefs last week to discuss the same issue.

On the exclusion of certain part of export credit from PSL, Chakrabarty said credit to small scale industries and agricultural exports is already classified as PSL, as per the norms, and the RBI will not budge in case someone makes the demand for classification of credit to export-oriented big corporates as PSL.

Following the MV Nair panel report on PSL, which sought to place large foreign banks - with over 20 branches to begin with - on par with domestic lenders on the PSL front, some of the affected foreign banks (there are only three such lenders now StanChart, HSBC and Citi) have reportedly sought inclusion of lending to the infra sector as PSL.

This demand, along with their call for inclusion of export financing as PLS lending, if accepted, would help them meet the new 40 percent PSL target as they don't have the branch presence to reach out to farmers and MSMEs in the far-flung areas.

The Nair committee report has called for increasing the PSL target for foreign banks from 32% to 40%, which is the current target of the domestic banks.

On foreign banks, he said the RBI has not arrived at any conclusion on any revision as yet.

On the likely scaling down of foreign banks' expansion plans as a result of the new PSL norms, he said, "you do priority sector lending, expand and participate in the growth story."