RBI faces pressure to ease PSB lending curbs

Govt wants central bank to review regulations on lenders

The government will push the Reserve Bank of India (RBI) to ease lending restrictions for smaller lenders and review rules governing its functioning at a board meeting next month, according to sources.

The members, including government nominees, will press for some of the weak banks to be removed from the Prompt Corrective Action (PCA) list, the sources added.

Currently, there are 11 staterun banks on the list. These are Allahabad Bank, United Bank of India, Corporation Bank, IDBI Bank, UCO Bank, Bank of India, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Dena Bank and Bank of Maharashtra.

The RBI in its central board meeting held on November 19 had decided the issue of banks under Prompt Corrective Action (PCA) would be examined by Board for Financial Supervision (BFS) of the central bank.

The PCA framework kicks in when banks breach any of the three key regulatory trigger points -- namely capital to risk weighted assets ratio, net non-performing assets (NPA) and return on assets (RoA).

The new proposals suggest another potentially tense board meeting on December 14 amid an ongoing dispute between the finance ministry and the central bank over a number of issues, including the transfer of surplus funds, easing of lending rules and providing liquidity to the shadow-banking sector. The two sides signalled a truce at the most recent board meeting earlier this month.

The RBI will also have to come with a plan to prevent banks accumulating bad loans rather than just penalising weak lenders with restrictions on lending, the sources added.