An appellate tribunal has upheld a monetary penalty imposed by the Reserve Bank of India on a scheduled commercial bank for overstating its achievement of priority sector lending (PSL) targets by counting agricultural loans disbursed through an intermediary, Suvidha Rural Credit Services, that was not a duly appointed and registered business correspondent under RBI's guidelines. The bank had argued that the loans were genuinely disbursed to eligible small farmers and should count toward its PSL target regardless of the intermediary's registration status.
The tribunal rejected that argument, holding that RBI's Master Directions on Priority Sector Lending require strict adherence to the prescribed channel and reporting framework precisely because PSL classification carries regulatory consequences, including exemption from certain shortfall-linked obligations such as contributions to the Rural Infrastructure Development Fund. Allowing banks to count loans routed through unrecognised intermediaries would undermine the integrity of PSL reporting across the banking system, even where the underlying borrowers were, in fact, eligible small farmers.
The tribunal also noted that the bank's own internal audit had flagged the intermediary's irregular status a year before the RBI inspection, and the bank's failure to act on that internal flag was an aggravating factor in fixing the quantum of penalty.