Government, RBI signal truce after marathon board meeting

Government, RBI signal truce after marathon board meeting

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.

The almost 10-hour long meeting of 18 board members which included Tata Sons Chairman N. Chandrasekaran and Subhash Chandra Garg, Secretary, Department of Economic Affairs, was cordial despite the public confrontation between RBI officials and the members representing the government, said people in the know of the discussions. Reports say the Modi government has proposed a discussion on governance and an appropriate economic capital framework during today's RBI meeting.

The Reserve Bank of India will form a panel to study the transfer of its surplus reserves to the government, Sachin Chaturvedi, one of the members of the 18-member board, said in an interview to Bloomberg News.

Ahead of the crucial RBI Board meeting, Congress President Rahul Gandhi Monday accused Prime Minister Narendra Modi of destroying institutions and hoped Reserve Bank Governor Urjit Patel has a "spine'and will show the prime minister 'his place".

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 Board also advised that the RBI should consider a scheme for restructuring of stressed standard assets of MSME borrowers with aggregate credit facilities of up to Rs 250 million, subject to such conditions as are necessary for ensuring financial stability."
The RBI board is expected to discuss issues related to making relaxations to the PCA framework to clean up the balance sheet of banks burdened with NPAs.

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The meeting came amid a rift between the central bank and the government over the future course of policies.

Governor Urjit Patel is believed to have said the bank should not send the wrong message by watering down rules.

On other issues however - such as the question of whether increased liquidity would be provided to the non-banking finance (NBFC) sector - there appears to have been no decision taken at all. "They were flexible on several issues". 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. "My guess is that the independent directors (at least most of them) realised that the government was on a perilous course and refused to go beyond giving advice to the RBI", he tweeted.

Globally, PCA kicks in only when banks slip on capital adequacy ratio, and the government is in favour of this practice being adopted for the domestic banking sector as well.

On October 27, RBI deputy governor Viral Acharya delivered an unusually strong statement warning against government interference in RBI's affairs. In his first public comments since the spat between the RBI and the Finance Ministry came out in the open, Swadeshi ideologue S Gurumurthy had last week said the stand-off "is not a happy thing at all". He also pitched for easing lending norms for small and medium enterprises, which account for 50 per cent of the country's GDP. 14 when the board meets next. Reports suggested the finance ministry had proposed to the RBI to transfer a surplus of Rs 3.6-lakh crore from the RBI's reserves to the government, to be managed jointly by both.

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