RBI Board meet: Rahul Gandhi hopes Urjit Patel, his team have spine

Marco Green
November 19, 2018

"Government is determined to "capture" RBI in order to gain control over the reserves".

Investors were on guard against any resurrection of the row between the central bank and government officials, but few were expecting fireworks as both sides have tried to dispel fears of a more serious falling out. These amount of almost 28 pc of its total assets. Either way, there is considerable nervousness in policy circles as well as the markets, both in India and overseas, as to how the curtain comes down on this unprecedented confrontation between RBI and the union government.

The RBI's central board now has 18 members, including Governor Urjit Patel and his four deputies as full-time official directors, while the rest have been nominated by the government, including the Economic Affairs and Financial Services Secretaries. 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. If you strictly go as per the regulations section 7 (2) and section 7 (1) of the RBI Act, it gives the board full powers to do all the acts and things subject to government regulations. The issues include a shortage of liquidity in the system, RBI's strict Prompt Circular Action (PCA) norms against 11 banks, and how much reserves should remain with the RBI.

The RBI may also climb down from its position of stringent norms for the PCA framework for banks. The PCA has imposed lending and other restrictions on these weaker lenders, hitting the MSMEs and NBFCs hard. "Most central banks don't have reserves of this kind at all, only RBI has these kinds of reserves", he said on 15 November in an address at the Vivekananda International Foundation.

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. However, the central bank has been averse to the government's demand as it considers the sectors to be vulnerable.

The RBI and the Centre may also reach an agreement to form two committees, to address the issue of economic capital of the RBI and other governance issues.

The Congress has been accusing the government of undermining the RBI's autonomy to gain control over its Rs 9 lakh crore reserves for development work ahead of state and national elections.

Amid faceoff between the Reserve Bank of India and the government, a crucial meeting of the central bank's Board of Directors will be held today. Government's fiscal math is completely on track.

The Congress leader has in the past accused the government of destroying institutions. "The government has actually foregone (Rs) 70,000 crore of budgeted market borrowing this year".

Other reports by Click Lancashire

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