Priority Sector Lending target deadline for Urban Cooperative Banks extended

MUMBAI: Urban cooperative banks (UCB) are getting more regulatory relaxations. The Reserve Bank of India (RBI) has extended the deadline for meeting their priority sector lending (PSL) norms.

Moreover, those who have already met the targets would be suitably rewarded. They will also be allowed to resolve stressed assets the same as commercial banks are allowed.

“With a view to ease the implementation challenges faced by the UCBs, it has been decided to extend the phase-in time for achievement of the targets by two years, i.e. upto March 31, 2026” Governor Shaktikanta Das said in his monetary policy statement on Thursday. “Further, suitable incentives shall be provided to UCBs that have met the prescribed targets as on March 31, 2023”.

The PSL targets for UCBs were revised in 2020 amidst the backdrop of failure of a large UCB- Punjab and Maharahtra Co-operative Bank, RBI increased their PSL targets from 40% in March 2020 to 75% by March 2024 to improve the granularity of their loan book.

In order to ensure a non-disruptive transition, a glide path was provided till March 31, 2024 to achieve the revised targets. Detailed circular on the matter will be issued separately, Das said.

“ The proposal to allow more time to meet the targets shall reduce their PSL purchases and support their profitability in the interim” said Karthik Srinivasan, senior vice president, group head - financial sector ratings, at ratings firm Icra Ltd.

Besides the relaxations on PSL targets, UCBS will also be able to do technical write-offs and execute compromise settlements with defaulting borrowers.

The banking regulator has decided to widen the scope of the framework for resolution of stressed assets, under which all the regulated entities including cooperative banks would be able to execute "compromise settlements and technical write-offs" to resolve non-performing assets.

This resolution option was available only for dud assets of commercial banks and select non-bank finance companies. It is now being extended to UCBs as well, Das said. Guidelines for same will be issued soon.