RBI board meeting, earnings growth, MF industry, and more

Lloyd Doyle
November 19, 2018

The two-day board meeting which could not be concluded before Diwali, is meeting again to reach a consensus on issues like payment of dividend to the government and PCA imposition on 11 public sector banks that prevents them from sanctioning and disbursing loans. The central board, headed by the RBI Governor, is expected to discuss issues mentioned in the agenda circulated to the board members in advance.

Reports claim the government wants the central bank to part with a third of its reserves.

The Congress has also accused the government of trying to force RBI governor Urjit Patel's exit for not being pliant. According to reports, the effort could run into some resistance from the bank's independent directors who are nominated by the central government. "RBI and government representatives are therefore likely to make presentations on some of these issues, highlighting the impact of these changes on the banking sector", said one of the board members on condition of anonymity.

The board meeting was specially convened to follow through on its last meeting on October 23, otherwise, such meetings seldom draw attention as they typically focus on standard discussions on macroeconomic variables.

As a result of the relaxation, some banks may come out of the PCA framework by the end of this fiscal. The PCA has imposed lending and other restrictions on these weaker lenders, hitting the MSMEs and NBFCs hard.

Economic capital framework refers to the risk capital required by the central bank while taking into account different risks. 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).

That has left traders still anxious to see how far the central bank might be ready to compromise to meet the government's demands.

Prime Minister Narendra Modi's administration is believed to be seeking closer supervision of the Reserve Bank of India by recommending the board draft regulations allowing the establishment of panels overseeing such functions as financial stability, monetary-policy transmission and management of reserves. He also pitched for easing lending norms for small and medium enterprises, which account for 50 per cent of the country's GDP. Last month, RSS-affiliated Swadeshi Jagran Manch said the RBI Governor should work in sync with the government or resign. 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.

Other reports by Iphone Fresh

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