The Reserve Bank of India (RBI) prompt corrective action framework, will be discussed on Tuesday at the central bank’s board meeting.

The government and non-banking finance companies (NBFC) on Monday put the pressure on the Reserve Bank of India and asked it to dilute the prompt corrective action (PCA) framework under which loss-making banks have been stopped from lending, said people familiar with the matter.

Finance ministry and RBI officials are likely to meet soon to examine the PCA rule, sources privy to the matter told CNBC-TV18.

Also Read: Government, NBFCs ask RBI to dilute PCA rules: Here is what experts have to say

Housing finance companies (HFC), NBFCs and debt funds said that the current debt squeeze is due to PCA but the bankers denied this argument and blamed lack of capital for lower loan growth.

Under the current rule, banks under PCA cannot lend below A+ rated companies. The rule also stops them from lending big ticket loans to companies.

Last week, RBI had eased lending norms related to certain NBFCs as liquidity concerns in the sector persist and markets continue to question the viability of some of the firms following the IL&FS debacle.

Also Read: Time for an asset quality review of NBFCs and Housing Finance Companies

In April, RBI tightened the PCA rules that aim to rein in the banks when they fall short of capital or exceed bad loan limits.

Under the PCA, banks face restrictions on distributing dividends and remitting profits. The owner may be asked to infuse capital into the lender. That apart, lenders would also be stopped from expanding their branch networks. It would need to maintain higher provisions and management compensation and directors' fees would be capped.

As many as 11 of 21 state-owned banks are under the PCA of the RBI due to their weak financials.

The 11 banks that are under PCA are Dena Bank, 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 and Bank of Maharashtra.

With inputs from agencies.

First Published:Oct 22, 2018 3:47 PM IST