RBI seeks support from PSBs on MSME credit

The Reserve Bank of India (RBI) has sought support from the public sector banks for increasing credit supply to the MSME sector.

According to the sources who attended the meeting of heads of public sector banks convened by the RBI governor Shaktikanta Das, the central bank chief discussed the issue of credit supply to MSMEs at length with the bank chiefs.

“He was trying to get the understanding of the sector. We discussed various issues during the two-hour-long meeting including the PCA norms, MSME credit and the liquidity issue in the markets,” a source in the know said.

However, there were no specific conclusions arrived at during the meeting.

On the liquidity front, even as the bankers seem to be relaxed, numbers suggest otherwise.

The liquidity deficit in the banking system widened during the previous week, reversing the easing witnessed in the first week of December. The average liquidity deficit has more than tripled during the week December 10-14, 2018 to Rs 84,737 crore compared with the average liquidity of Rs 27,492 crore in the previous week, despite the RBI infusing liquidity by way of OMO purchases to the tune of Rs 10,000 crore on December 13, 2018.

This is the 10th consecutive week wherein the banking system has been faced with an overall liquidity deficit.

It is also understood that the bank chiefs pitched in the meeting for the tweaking of the prompt corrective action norms. "PCA is like an intensive care unit (ICU). If you keep your patient in ICU for four long years, there is some issue with your diagnosis," a PSB chairman, who didn't wish to be named said.

The PCA, which restricted the lending of 11 out of 21 PSBs, was one of the major bone of contention between the Narendra Modi-led BJP government and the central bank under the leadership of former governor Urjit Patel. The government is of the opinion that PCA has restricted credit flow of the banks to the MSME segment, that it considers as a crucial vote-bank ahead of the 2019 General Elections. The issues led to the unceremonious exit of Patel from the central bank.