RBI Board Meeting Concludes, Statement Expected Shortly

Jeannie Matthews
November 20, 2018

The central bank and the government have been warring over these issues for almost a month.

Mumbai: The Reserve Bank of India (RBI) said Monday it will inject ₹8,000 crore into the system through purchase of government securities on 22 November. The RBI's Central Board is likely to work out solutions on issues relating to the prompt corrective action (PCA) framework and liquidity for Small and medium-sized enterprises (SMEs) and Non-banking financial companies, NBFCs.

"There is no harm in a technical committee examining the issue of Reserves".

RBI's total reserves stand at Rs 9.59 lakh crore. These amount of almost 28 pc of its total assets. After efforts at a de-escalation, RBI chief Urjit Patel is unlikely to resign - as speculated by some reports - but sources predict a clash in the meeting over the centre's demand for a special liquidity window for Non-Banking Finance Companies (NBFCs).

NPAs of power firms which have been a contentious issue after RBI's zero-tolerance circular of February, 2018 may also see a relaxation at a later date.

The RBI's crucial board meeting on Monday is expected to take up the liquidity crisis that has triggered a tiff between the government and the central bank. Though Urjit Patel has voting rights, his four deputies, including NS Vishwanathan, Viral Acharya, BP Kanungo and Mahesh Kumar Jain, don't have voting rights but their roles are crucial.

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Gurumurthy, who was appointed to the board of RBI a few months back, had said the capital adequacy ratio prescribed in India is 1 per cent higher than the global Basel norms.

The government is also looking for a consultative process in decision-making to align with the overall economic policy framework. Last year, 11 public sector banks were brought under the RBI's revised PCA framework which set tougher norms and banned them from lending. The banks put under the PCA framework include Allahabad Bank, United Bank of India, Corporation Bank, IDBI Bank, UCO Bank, Bank of India, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Dena Bank and Bank of Maharashtra. It will consider whether some banks can be moved out of PCA based on their financial performance and whether some of the parameters within the PCA may be eased, as per the government's suggestions. The RBI on the other hand has indicated that the government will have to infuse more capital (something the Centre is loathe to do), before it can let weak banks out of PCA.

The finance ministry denied such reports, but multiple sources indicate that the government is intent on examining whether the RBI could reduce the amount of money it holds as "contingency reserves". "Lot of misinformed speculation is going around in media". "Government's FD (fiscal deficit) in FY 2013-14 was 5.1%". Now, while RBI has agreed for setting up of an expert committee on the economic capital framework (ECF) its mandate is restricted to future earnings and not the existing reserves, sources privy to the board deliberations told The Hindu.

However, the Congress party accused the BJP of trying to seek funds from the RBI to offer freebies before the next Lok Sabha polls.

One of the Modi government's grievances is that the RBI is not doing enough to help speed up the recovery of India's economy.

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