RBI board meet: Urjit Patel stays, but bragging rights go to government

Anna Jefferson
November 21, 2018

The nine-hour marathon meeting of the Reserve Bank of India's central board saw mutual agreement being reached on several issues amid the ongoing rift between the government and the central bank. Last month, RSS-affiliated Swadeshi Jagran Manch had said the RBI governor should work in sync with the government or resign.

The government was seeking to transfer a surplus of Rs 3.6 lakh crore, more than a third of the total Rs 9.6 lakh crore reserves of the central bank to the government. However, after a long meeting held on Monday, RBI has announced major decisions that have been taken.

The Reserve Bank of India's board of directors met on Monday amid speculation that the Centre has proposed a change in rules that will enable it to supervise the central bank better, NDTV reported.

The RBI board on Monday chose to set up a high-powered committee to examine issues related to surplus capital of Rs 9.69 lakh crore with the central bank and advised it to consider a scheme for restructuring stressed assets in the MSME sector. While the two committees will have to come out with workable solutions, the other two measures relating to MSMEs and capital adequacy will be helpful for the SME sector as well as the banking system. The government has been looking at various ways to ease the cash flow into this sector, one of the worst affected by the demonetisation drive.

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The Congress president has openly praised RBI Governor Urjit Patel for "defending" the central bank from Prime Minister Narendra Modi. The central bank would now inject Rs 8,000 crore into the market by purchasing government securities on November 22, 2018.

As many as 11 banks with high non-performing assets and weak balance sheets have been brought under the prompt corrective action plan.

The RBI's statement acknowledges this, although makes no mention of what the central bank plans on doing.

Government representatives had argued that India has prescribed capital norms that are tougher than many other countries.

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The Modi government has been putting pressure on RBI to release part of RBI reserves to meet budget goals.

"The Board also advised that the RBI should consider a scheme for the restructuring of stressed standard assets of MSME borrowers with aggregate credit facilities of up to Rs 250 million (Rs 25 crore), subject to such conditions as are necessary for ensuring financial stability", the statement added.

From the meeting it is known that, RBI will set up 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.

The committee is expected to give its prescription for future reserves and surpluses, and the RBI's past reserves may not be touched. The government had asked the RBI to bring down capital to risk (weighted) assets ratio to 8 percent, in line with Basel III norms, from 9 percent now.

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However, it has agreed to extend the transition period for "implementing the last tranche of 0.625% under the Capital Conservation Buffer (CCB), by one year, i.e., up to March 31, 2020".

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