Beware a lending freeze: PSBs need a structural change in loan-giving

Initial optimism about the speed of the asset recovery programme under the new code now seems unwarranted

The Reserve Bank of India (RBI) is reportedly planning to ask several public sector banks (PSBs) under the prompt corrective action (PCA) framework to restrict their exposure to fresh credit and freeze staff recruitment. This instruction has already been issued to Dena Bank and Allahabad Bank; it may be extended to several others whose results for the January to March quarter have shown little improvement in terms of the level of non-performing assets (NPAs) or returns. While the NPA ratio of Dena Bank is 19.56 per cent, those of others range from over 15 per cent to 24 per cent.