Expect the best & the worst at RBI board meeting today

Lloyd Doyle
November 19, 2018

"Hope Urjit Patel has a spine and will show PM his place", the Congress president tweeted shortly after the RBI board meeting began, referring to the RBI governor. Government sources told IANS that the RBI said that inflation was under control, and that it had taken no measure to tighten liquidity in the system. The other option being weighed is a committee being jointly set up by the government and the RBI to access the merits of the corrective action undertaken by the ailing banks.

"To the extent that there is an excess of reserves with the RBI, they should be used to write off outstanding loans to the government".

Out of RBI's total reserves, Rs 6,733 crore is capital and other reserves, Rs 2.5 lakh crore is the contingency fund and Rs 6.71 lakh crore is the currency and gold revaluation reserves.

Besides this, the government is also looking for a consultative process in decision-making to align the overall economic policy framework, given its differences with the central bank over many issues, sources said.

RBI has restricted lending operations of 11 public sector banks with high non-performing assets and low capital adequacy ratio (CAR) under the PCA framework.

India's government is seeking to form panels to monitor functions of the Reserve Bank of India (RBI), Bloomberg reported on Friday, citing people with knowledge of the matter, which could escalate tensions between the finance ministry and the central bank. Garg said the only proposal "under discussion is to fix appropriate economic capital framework of RBI". The expectation, though, is that both sides will arrive at a common agenda to go forward. According to Section 8 (3) of the RBI Act, the four deputy governors and the two government representatives do not have voting rights.

Invoking Section 7 allows the government to issue directions to RBI. On November 17, finance minister Arun Jaitley said that growth must not be throttled by limiting credit and liquidity supply.

That has left traders still anxious to see how far the central bank might be ready to relent to meet the government's demands. At Monday's meeting, sources indicated, the two government representatives on the board will want RBI to announce the agreement that had been reached on easing credit flow to micro, small and medium enterprises (MSMEs), a revamped prompt corrective action (PCA) framework for weak banks, and alignment of capital norms for Indian lenders in line with global standards instead of making them more stringent.

Other reports by Iphone Fresh

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