Govt may raise credit and liquidity issues at RBI meet

The lending curbs came into being after the RBI put half of the 21 public sector banks under prompt corrective action (PCA) framework last year due to their large bad loans (NPAs) and weak capital level.

The Centre is likely to discuss issues related to lending curbs imposed on banks at the Reserve Bank of India's Board meeting on November 19, top government sources told DH on Wednesday.

Tight liquidity conditions arising out of restriction imposed by RBI on 11 PSU banks have been hurting retail businesses and non-banking finance companies, sources said.

The government nominees on the RBI Board are likely to press for relaxation on these restrictions, they said.

The meeting comes amidst strained relations between the finance ministry and the RBI. The bone of contention between the two this time around is not easing of policy interest rates but the lending curbs imposed by the central bank on the weak public sector lenders.

The lending curbs came into being after the RBI put half of the 21 public sector banks under prompt corrective action (PCA) framework last year due to their large bad loans (NPAs) and weak capital level.

A wider credit crunch stares at the face of the government after a series of major defaults by the country's largest infrastructure lender IL&FS.

Though the government has taken control of the company and replaced its Board with its own nominees, the exposure of banks, insurance companies, and mutual funds to its thousands of crores rupees of the loan have triggered a credit crunch.

The government, at this juncture, wants the RBI to relax lending restriction imposed on 11 PSBs, the central bank, on the other hand, is reluctant to do that and wants more autonomy to deal with weak banks.

The international rating agencies have red-flagged the rising liquidity issue with IL&FS as credit negative for Indian banks. The crisis has also put non-banking finance companies under pressure.

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Govt may raise credit and liquidity issues at RBI meet

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