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RBI Guv met PM on Friday seeking solution to controversy

By IndianMandarins- 12 Nov 2018
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RBI Governor Urjit Patel is believed to have met PM Modi last week in a bid to work out a solution on contentious issues that have been flash point between RBI and the Govt during the last few weeks. Reportedly, Patel met senior officials in the PMO.

 

The meetings came amid a face-off between the RBI and the FinMin over issues ranging from appropriate size of reserves that RBI must maintain to ease of lending norms to step up growth in an election year. Reportedly, RBI may create a special dispensation for lending to small and medium enterprises, but it was not clear if an agreement has been worked out to ease liquidity situation for NBFCs and the RBI parting with its substantial part of its surplus.

 

Rift had escalated recently, with the FinMin initiating discussion under the never-used-before Section 07 of the RBI Act which empowers the government to issue directions to the RBI Governor.

 

RBI Deputy Governor Viral Acharya had in a speech last month talked about the independence of the central bank, arguing that any compromise could be “potentially catastrophic” for the economy.

 

Last week, DEA Secretary SC Garg had said the govt was not in any dire need of funds and that there was no proposal to ask the RBI to transfer Rs 3.6 lakh crore. He further said the only proposal “under discussion is to fix appropriate economic capital framework of RBI”. Economic capital framework refers to the risk capital required by the central bank while taking into account different risks. The RBI has a massive Rs 9.59 lakh crore reserves.

 

Patel’s meetings at the PMO came days before the RBI’s crucial board meeting on November 19 during which contentious issues are likely to come up for discussion. Sources said the government nominee directors and a few independent directors could raise the issue of interim dividend along with the capital framework of RBI.

 

However, any change in the central bank’s economic capital framework can be carried out only after making amendments to the RBI Act, 1934.

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