Govt. and RBI break the ice

The Government and the Reserve Bank of India on Monday pulled back from the brink after a public spat over the last few weeks with the central bank and the board reaching an agreement on providing relief to small and medium firms and easing lending restrictions on some state-owned banks.

At the 9-hour board meeting, one of the longest in recent years, the RBI agreed to work out a loan restructuring scheme for SMEs for a loan exposure of up to Rs 25 crore in line with the advice of the board. The board advised that the scheme should be subject to such conditions as are necessary for ensuring financial stability. The RBI was earlier unwilling to consider any loan recast scheme for small units as the banking sector is already reeling under the impact of a huge pile of bad loans.

An existing committee of the RBI, the Board for Financial Supervision (BFS), will now review the Prompt Corrective Action or PCA framework — which imposes restrictions on lending on banks which have been hit by bad loans and weak capital.

This is expected to ease curbs-and so boost lending-for a few of the 11 PSU banks which have been placed under this framework. Sources said that the BSF is expected to release some of the banks from the PCA framework in the wake of improvements in their operation.

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