India to push RBI to lift lending curb on banks

By BLOOMBERG

NEW DELHI • The Indian government will push its central bank to ease lending restrictions for some weak banks and review rules governing its functioning at a board meeting next month, people with knowledge of the matter said.

The members, including government nominees, will press for some of the weak banks to be removed from the so-called prompt corrective action list, particularly those ones that have been consistent in recovering outstanding debt, the people said, asking not to be identified as the plan is not public.

There are 11 state-run lenders on the list, which curbs their ability to lend.

The proposals suggest another potentially tense board meeting on Dec 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 Reserve Bank of India (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 people said.

Board members may ask the RBI to come up with a prompt preventive plan as well, apart from seeking greater supervisory control on issues including the monetary policy transmission, they said.