After a marathon meet, RBI and Govt find middle ground

After a marathon meet, RBI and Govt find middle ground

The RBI Board meeting has been going on for over seven hours now. The central bank and the government have been warring over these issues for almost a month.

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".

The board chose to set up a panel for transfer of the RBI's surplus funds to Centre, review the prompt corrective action (PCA) framework, frame a restructuring scheme for stressed micro-, small- and medium enterprises (MSMEs) loans and relax a component of capital adequacy norms by one year.

Another flashpoint was the Centre asking that the RBI transfer surplus reserves to the government.

It's worth noting, as The Wire's M.K. Venu has pointed out, that at least two committees have been formed in the last 20 years to examine the very same issue. On Sunday, Congress leader P Chidambaram went a step forward to accuse that the central government of attempting to, as he described it, "capture" the bank to gain control over its Rs 9 lakh crore reserves. These amount of almost 28 pc of its total assets.

Reports of a rift between RBI and the Centre emerged in October this year.

The Central Board of the RBI also advised that the RBI should consider a scheme for the restructuring of stressed MSMEs.

Urjit Patel leaves after the RBI board’s meeting yesterday  S Gurumurthy after the RBI board meet yesterday. He is on the government’s side in the standoff with the RBI

Acharya's comments were seen to have tactic understanding of his boss, Urjit Patel.

A closely watched meeting of the board of the Reserve Bank of India ended this evening with the central bank agreeing to increase liquidity in the open market. "Based on an assessment of prevailing liquidity conditions and also of the durable liquidity needs going forward, the RBI has made a decision to conduct purchase of the following government securities under Open Market Operations for an aggregate amount of Rs 80 billion on November 22, 2018 (Thursday).", it said in a statement.

The government and the Reserve Bank of India (RBI) are also looking to reach an amicable solution with respect to the relaxation of the PCA framework and easing of lending norms for the MSME sector. Under PCA, weak banks are placed under a harsh framework that prevents them from accepting new deposits and lending money.

These are 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. The government feels that the MSME sector - which employs about 12 crore people and plays a critical role in the economy - needs some support after being impacted by demonetisation and implementation of the Goods and Services Tax (GST). 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 Act allows for cash transfers to the government kitty.

The view of some of the directors on the board is that the RBI is holding excess reserves and that the government - which is the owner or the sole shareholder - should receive a larger share of the surplus or dividend.

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