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Govt, RBI may solve some key issues pertaining to MSME sector

15 Nov 2018 Evaluate

The government and Reserve Bank of India (RBI) are working towards reaching an agreeable solution particularly with respect of relaxation of the Prompt Corrective Action (PCA) framework and easing of lending norms for the micro, small and medium enterprises (MSME) sector including strict rating criteria to improve credit flow to this sector, ahead of the central bank's board meeting on November 19. Even if no decision on the issue of relaxation of PCA framework which the finance ministry has been pitching is taken during the board meeting, steps are likely to taken in the next few weeks. 

As a result of relaxation, some banks may come out of the PCA framework by the end of 2018-19. The PCA framework kicks in when banks breach any of the three key regulatory trigger points namely capital to risk weighted assets ratio, Net non-performing assets (NPA) and return on assets (RoA). Besides, the central bank is expected to consider special dispensation for MSME sector and non-banking financial companies (NBFCs) which have been facing liquidity squeeze.

The government feels that the MSME sector which employs about 12 crore people plays a critical role in the economy, and the sector hit by note ban and roll out of Goods and Services Tax (GST) needs support. However, the central bank has been averse to government demand for special dispensations for MSME and NBFC sectors as it considers them vulnerable. 

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