The Reserve Bank of India (RBI) has strengthened its priority sector lending (PSL) framework by introducing mandatory auditor certification for banks. The move aims to enhance the transparency and accountability of banks in meeting their priority sector lending targets.
Priority sector lending refers to the allocation of a certain percentage of a bank’s total credit to specific sectors, such as agriculture, micro and small enterprises, and weaker sections. The RBI has set targets for banks to lend to these sectors, and the new framework is designed to ensure that banks comply with these targets.
Under the new framework, banks will be required to obtain a certificate from their statutory auditors confirming that they have met their priority sector lending targets. The certificate will be required for each financial year, and banks will have to submit it to the RBI within a specified timeframe.
The auditor’s certificate will verify that the bank has complied with the priority sector lending targets, including the sub-targets for small and marginal farmers, micro enterprises, and weaker sections. The certificate will also verify that the bank has not diverted any funds meant for priority sector lending to other sectors.
The RBI has also introduced a new system of incentives and penalties to encourage banks to meet their priority sector lending targets. Banks that exceed their targets will be eligible for incentives, while those that fail to meet their targets will face penalties.
The strengthening of the priority sector lending framework is expected to have a positive impact on the economy, particularly in rural areas. By ensuring that banks lend to priority sectors, the RBI aims to increase credit flow to these sectors, which will help to promote economic growth and reduce poverty.
Overall, the introduction of mandatory auditor certification for priority sector lending is a significant step towards ensuring that banks meet their social obligations and contribute to the country’s economic development. The move is expected to enhance the transparency and accountability of banks and promote greater compliance with priority sector lending targets.
In a bid to push banks to lend more to the agricultural and MSME sectors, the RBI has been taking various measures. With this move, the RBI aims to bring more transparency in the PSL framework. It will help banks in better assessment of priority sector targets. This move is likely to increase the credit flow to the priority sectors, which will have a positive impact on the economy.