HSBC welcomes Nair panel report on higher PSL target

Mumbai: The country`s second largest foreign lender by branch network, HSBC, has welcomed M V Nair committee`s report on priority sector lending (PSL), saying that it seeks to bring in a level playing field.

"We welcome the report as it calls for a level playing field for all, because the proposed increase is not just for one particular sector but is flexible," HSBC India country manager Naina Lal Kidwai said, talking to PTI.

Kidwai pointed out that though the report seeks to increase the PSL target for foreign banks to 40 per cent of the overall advances, it also calls for creating special categories within the existing sectors such as small and marginal farmers, microenterprises, etc, and seeks that minimum levels be achieved in every sub-category.

"A bank should not be forced to do something in which it has no expertise. For instance, if a bank has no history in lending to agriculture sector, it should not be forced to do, that will only mess things up," Kidwai said.

On February 21, the panel headed by Union Bank of India chairman M V Nair submitted the report to RBI. The report called for a steep 8 percentage points increase in the PSL target for foreign banks to 40 percent, on par with domestic banks. It also called for retaining the overall quantum of such lending at the existing level for the domestic banks.

On the RBI`s guidelines on foreign banks, which want them to adopt the subsidiary route and not branch route, Kidwai said, "No final view has been arrived at as the issue involves huge tax liabilities. The report is pending with the finance ministry as it has huge capital gains tax implications for all the players, apart from giving us tax breaks."

HSBC is open to the RBI guidelines as it will give it a level playing filed, but the taxation part has to be considered, she said. If this issue is resolved, there is no problem with the subsidiary route, she added.

As to what will be the tax implication for HSBC, she refused to give a number, but said "It is really substantial, specially for the very old players like us."

Under the new PSL recommendations, which are open for public comments till March 31, foreign lenders will have to lend 15 percent each to exporters and to MSEs, with 7 percent allocation to micro businesses. But for the foreign banks operating as wholly-owned subsidiaries, it calls for the PSL requirements to be hiked, to bring them on par with local banks.

The panel has come up with a slew of other recommendations, such as doing away with the distinction between direct and indirect lending to the farm sector.

Nair defended the report saying that recommendations can not be termed anti-free trade as they comply with the reciprocity pacts, etc, and the World Trade Organisation`s views on respecting local laws.

To pull in entrepreneurs towards food and agro processing businesses, loans up to Rs 20 crore for installing plant and machinery be brought under the PSL umbrella, the report says.

For their role in complementing banks, up to 5 percent of advances to non-banking lenders for on-lending to the priority sector beneficiaries be considered as PSL, it suggests.

The committee has also increased target on educational loans (to be considered for PSL) to Rs 15 lakh (domestic) and Rs 25 lakh (international) from from the present Rs 10 and 20 lakh respectively.

The report also calls for setting up non-tradable PSL certificates on a pilot basis, where a bank having excess PSL can transfer the portfolio to its peer who is struggling to meet the target, at a mutually agreed price.