The government has recently indicated its displeasure with the restrictions that the Reserve Bank of India (RBI) has put on select banks under prompt corrective action (PCA) framework and its reluctance to give any leeway to banks for increasing lending to small businesses. The government claims that the adamant RBI has stymied banks’ capability to lend, in turn making genuine businesses suffer.

Data released by the central bank earlier this week shows that it is not so. As the chart above shows, the growth in the flow of funds from banks to the commercial sector has been gaining pace almost every month in the current fiscal year.

Most of the 11 public sector banks came under RBI PCA framework only in the last one year. The growth in bank funds to industry has increased during this period. The fact that bank loan growth has only grown shows that lenders are taking on the burden from their peers under PCA to meet the credit requirements of the industry.

So the central bank’s PCA norms haven’t really crimped the flow of credit to the economy.

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