Public sector banks are being arm twisted by their kin PSU heavy weights. The public sector heavy weights are trying to make a quick buck by pressurising PSU banks, reports CNBC-TV18. 

The RBI has been systematically making life difficult for bank treasuries by squeezing out money supply and pushing up rates. The problems of PSU banks have gotten compounded by the behaviour of their biggest clients - the public sector companies. Cash rich companies like LIC, SAIL, ONGC and BHEL largely bank with state-owned banks and in these days of cash crunch these companies have been able to effectively arm twist the banks to make a fast buck.

Bankers say they have no choice but to lend money against deposits or they risk losing the deposit, at a time when they are in dire need of cash. Bankers add that this practice hits their margins and the cash crunch only gets worse for the system as a whole since banks who take bulk deposits will have to borrow even more to maintain 25% SLR and 6.5% CRR