"Recognition day": In the midst of friction with the government, all eyes are now on the RBI board meeting tomorrow

By: Express Web Desk | New Delhi |

Updated: November 18, 2018 9:48:17 PM

In conversations with RBI to fix the economic capital framework: Govt. The RBI board meeting will be held on Monday. (Photo Express by Pradip Das)

Amid an ongoing rupture between the government of the Union and the central bank, all eyes will be on the meeting of the board of directors of the Reserve Bank of India (RBI) on Monday. Candidates from the Ministry of Finance and some independent directors are expected to confront Governor Urjit Patel and his team on issues ranging from liquidity for MSMEs to the economic capital framework.

The meeting comes amid reports that Urjit Patel could withdraw from his post, even when PTI reported that the governor is likely to present a united front, with the central board of 18 RBI members supporting the central bank's mission of cleaning the bank balance sheets, PTI reported.

MSMEs, liquidity issues to be discussed.

During the meeting, the RBI is expected to consider a special dispensation for micro, small and medium-sized enterprises (MSMEs) and non-bank financial companies (NBFCs), which have been facing liquidity problems. With the pressure of demonetization and GST, the decision could act as a respite for MSMEs. The central board member, S Gurumurthy, said on Thursday that demonetization and the Tax on Goods and Services (GST) have "affected" the micro, small and medium-sized enterprises (MSMEs), which request more credit for the sector, which has been "without money". and "stolen credit".

In addition, the latest RBI data shows that the outstanding banks' credit for the micro, small and medium enterprises (MSMEs) sector has experienced a contraction for the first time in 14 months in September 2018.

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Both the government and the bank will seek to reach an agreement on the relaxation of the rules for the framework of Rapid Corrective Action (PCA). Of the 21 state banks, 11 are under the PCA framework, which imposes loans and other restrictions on weak lenders. As a result of the relaxation, some banks may exit the PCA framework at the end of this fiscal year. The PCA framework is activated when banks fail to comply with any of the three key points of regulatory activation, namely, the capital / risk-weighted badets ratio, the net unprofitable badets (NPA) and the return on badets (RoA).

The governor of the Reserve Bank India (RBI), Urjit Patel, is likely to present a united front. (Photo expresses Prashant Nadkar)

Amid tensions with the RBI, the central government had hinted at invoking Section 7 of the RBI Law, which had never been used before, which allowed it to issue addresses to the central bank and raise questions about the autonomy and independence of the central bank. RBI. Last month, the deputy governor of the RBI, Viral Acharya, spoke about the independence of the Central Bank, arguing that any commitment could be "potentially catastrophic" for the economy.

Economic capital frame other flashpoint

It is also expected that there will be discussions on the economic capital framework, which governs RBI's capital requirements and the terms for the transfer of its surplus to the government. On November 6, the Indian Express reported that a proposal from the Ministry of Finance seeking to transfer a surplus of Rs 3.6 lakh crore, more than a third of the total Rs 9.59 lakh crore of central bank reserves, was not accepted by the government the RBI. However, Secretary of Economic Affairs Subhash Chandra Garg tweeted that government reports seeking a large transfer of surplus funds were not true.

Finance Minister Arun Jaitley said on Saturday that growth should not be limited by limiting the availability of credit and liquidity. It is necessary that the growth process does not suffer due to the clean-up of the banking system of "sins committed collectively" during 2008-14 when regulatory mechanisms also ignored the high accumulation of debt, he said.

November 19 will be a day of adjustment for the independence of the central bank and the Indian economy.

– P. Chidambaram (@PChidambaram_IN) November 17, 2018

Government, RBI heading to the confrontation: Chidambaram

The former finance minister, Chidambaram, who had called November 19 as the "day of settling of accounts," said the government and the RBI were heading toward a "confrontation" at the bank's board meeting on Monday. . "The government is determined to" capture "the RBI to gain control over the reserves." The other so-called disagreements are just a smokescreen (sic), "he tweeted, and Chidambaram said:" Nowhere in the world is the central bank A company administered by the council Suggesting that private entrepreneurs will lead the governor is an absurd idea. "

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