Priority-Sector Shortfall and PSLC Purchase Mix
A semi-urban branch is reviewing its priority-sector lending (PSL) position at the end of the financial year. Its adjusted net bank credit (ANBC) is ₹80 crore. The regulatory targets are: total PSL 40% of ANBC, agriculture 18%, small and marginal farmers (SMF) 10%, micro enterprises 7.5%, and weaker sections 12%. The branch's actual outstanding are: total PSL ₹28 crore, agriculture ₹11 crore, SMF ₹6.5 crore, micro enterprises ₹4.8 crore, and weaker sections ₹7 crore. The branch has no fresh proposals in the pipeline that can be sanctioned before the year-end. It can buy PSLC-AG at 3.5% and PSLC-ME at 4.0% from a surplus bank; PSLC-General is available at 2.8%. Direct lending would earn about 9% but cannot be completed in time. The branch manager must choose a compliant, cost-effective mix without breaching sub-targets.
1. Compute the shortfall in each PSL category.
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Targets are percentages of ANBC = ₹80 crore:
- Total PSL: 40% × 80 = ₹32.00 crore; actual ₹28.00 crore → shortfall ₹4.00 crore.
- Agriculture: 18% × 80 = ₹14.40 crore; actual ₹11.00 crore → shortfall ₹3.40 crore.
- SMF: 10% × 80 = ₹8.00 crore; actual ₹6.50 crore → shortfall ₹1.50 crore.
- Micro enterprises: 7.5% × 80 = ₹6.00 crore; actual ₹4.80 crore → shortfall ₹1.20 crore.
- Weaker sections: 12% × 80 = ₹9.60 crore; actual ₹7.00 crore → shortfall ₹2.60 crore.
The total shortfall is not simply a single number because the sub-targets are separate obligations. Closing the overall ₹4 crore gap with general PSL would still leave agriculture, SMF, micro, and weaker-section gaps.
2. Can the branch meet all targets by buying only PSLC-General? Recommend a compliant, cost-effective purchase mix and state any residual gap.
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PSLC-General alone cannot work. Buying ₹4 crore of PSLC-General at 2.8% would cost ₹0.112 crore and would close the overall PSL gap, but it would not cure the category sub-targets. Agriculture would remain ₹3.40 crore short, micro enterprises ₹1.20 crore short, SMF ₹1.50 crore short, and weaker sections ₹2.60 crore short. Sub-target breaches are assessed separately, so the branch would still be non-compliant.
Minimum category-specific purchase:
- PSLC-AG: ₹3.40 crore at 3.5% = ₹0.119 crore.
- PSLC-ME: ₹1.20 crore at 4.0% = ₹0.048 crore.
- Total cost = ₹0.167 crore (₹16.7 lakh).
This takes total PSL to 28 + 3.40 + 1.20 = ₹32.60 crore, above the ₹32 crore overall target, but the excess is unavoidable if the agriculture and micro sub-targets are to be met through PSLCs. Agriculture becomes ₹14.40 crore (met) and micro becomes ₹6.00 crore (met).
Residual gap: There is no PSLC category that directly fills the SMF or weaker-section shortfall. SMF remains ₹1.50 crore short and weaker sections ₹2.60 crore short unless the branch can book eligible direct loans. The manager should buy the AG and ME certificates, simultaneously process any eligible SMF/weaker-section loans that can be completed before year-end, and escalate the residual gap rather than misclassify general PSLC as SMF compliance.
3. If the branch has only ₹3 crore available for PSLC purchases, how should it prioritise and what should it report?
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With only ₹3 crore, the branch cannot fully close agriculture and micro simultaneously. The hard sub-targets should be ranked by the severity of the breach and the availability of substitutes. Agriculture is short ₹3.40 crore and micro is short ₹1.20 crore; total category-specific need is ₹4.60 crore. A rational allocation is to buy PSLC-AG up to the available limit first, because agriculture is the larger gap and has a dedicated certificate. For example, ₹3 crore of PSLC-AG at 3.5% costs ₹0.105 crore, reducing the agriculture gap to ₹0.40 crore but leaving micro ₹1.20 crore short. Total PSL becomes ₹31 crore, still ₹1 crore short overall. The branch should report that it used the entire budget for the largest dedicated sub-target, that agriculture and micro remain non-compliant, and that SMF/weaker-section gaps cannot be purchased through PSLCs. It should not buy PSLC-General merely to make the overall PSL number look adequate, because that would hide the sub-target breaches.