The Prime Minister’s Office has called for a meeting of the chiefs of leading commercial banks Friday. The meeting comes at a time when a section in the government is raising questions over the Reserve Bank of India’s Prompt Corrective Action (PCA) framework posing lending curbs on a number of public sector banks, which, in turn, has resulted in a cascading impact on the liquidity position of Non-Banking Financial Companies and Housing Finance Companies.
Two sources close to the development confirmed that the meeting is expected to discuss several aspects impacting liquidity in the financial markets. It is likely that the government may unveil certain measures to inject liquidity in the banking system and ease some pressure on the public sector banks, sources said.
Over the last few weeks, several representatives from NBFCs and HFCs have met officials in the finance ministry raising concern over banks not extending credit to them. The NBFCs and HFCs are learnt to have told the government that following the IL&FS default, they are cash-strapped since many banks have stopped lending and this has affected consumer loans this festive season.
While there have been calls from the industry and the government for a relaxation in PCA norms to enable the 11 banks currently under the PCA to start lending and ease the liquidity situation, the RBI has not offered any relief on that front.
The banking regulator, however, took several steps to infuse liquidity in the market such as easing banks’ exposure norms for NBFCs and pumping liquidity through its open market operations (OMOs). Further, State Bank of India offered to provide some relief with its proposal to buy good quality NBFC assets worth around Rs 45,000 crore.
Amid worries about the nearly Rs 1 lakh crore worth of debt papers of NBFCs coming up for redemption by March, both the government and the RBI have been deliberating on maintaining adequate liquidity.
The government is also learnt to be considering a possible advancement of the capital infusion schedule of public sector banks. Sources said that advancing the Rs 45,000 crore of equity infusion in public sector banks may improve the health of the banks and pull them out of PCA.
As many as 11 of the 21 public-sector banks (PSBs) are on the RBI’s watch list for strained finances, two of which — Dena Bank and Allahabad Bank — face restriction on lending. These stressed banks make up for 30 per cent of deposits and 29 per cent of advances of all the 21 PSBs.