Glad govt acknowledged independence of RBI: Chidambaram

Darnell Taylor
November 20, 2018

Sources indicate there were detailed presentation by RBI on the issue of economic capital as well as other issues like prompt corrective action framework.

As the RBI's board of governors started their crucial meeting on Monday, Congress president Rahul Gandhi waded into the ongoing controversy over issues ranging from credit to the medium and small enterprises (MSME) to the central bank's reserves.

"The Board made a decision to constitute an expert committee to examine the ECF, the membership and terms of reference of which will be jointly determined by the Government of India and the RBI", it said.

The government's other suggestion to transfer excess reserves to the Centre, however, is likely to be decided by an expert committee to be set up by RBI. The board was not in agreement at touching the RBI's past reserves. There is no legal bar as long as Delhi maintains Rs 5 crore of reserve fund under section 46 with the RBI in our view, the report added. The RBI Board, while deciding to retain the capital adequacy requirement at 9 per cent, agreed to extend the transition period for implementing the last tranche of 0.625 per cent under the Capital Conservation Buffer (CCB) by one year - up to March 31, 2020. However, the central bank has been averse to the government's demand as it considers the sectors to be vulnerable.

The RBI, however, clarified that banks may be brought out of the PCA framework, as per present rules, after registering an annual profit.

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. As part of the OMO operations, RBI will purchase government securities maturing in 2021 bearing interest rate of 7.80%, 2024 (8.40%), 2026 (8.33%), 2028 (8.60%) and 2032 (8.28%).

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On the PCA, Board for Financial Supervision (BFS) of RBI will review the norms and will take a call if some of the parameters like net non-performing asset (NPA) ratio could be relaxed so that some of the banks come out of the PCA.

"The board also advised that the RBI should consider a scheme for restructuring of stressed standard assets of MSME (micro, small and medium enterprises) borrowers with aggregate credit facilities of up to 250 million, subject to such conditions as are necessary for ensuring financial stability", RBI's statement said. "Multiple data points were discussed but nothing was conclusive".

No timeline has been given for a specific conclusion on this issue, with sources telling The Wire that it will be debated once again at the next board meeting in December.

RBI board will meet on Monday to wind up the inconclusive discussions that first began on October 23. Another source concurred: "There were no heated exchanges between government nominees and RBI officials".

In the run-up to the board meeting, former Finance Minister P Chidambaram said Patel should step down if the board were to issue any direction to it on parting of capital reserves or relaxation of norms.

"My guess is that the independent directors (at least most of them) realized that the government was on a perilous course and refused to go beyond giving advice to the RBI".

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