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
RBIâ€. 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.
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 RBIâ€. 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.