Ease in PCA plan, more board powers at top of the agenda

Finmin nominees, some independent directors may take on Patel and team over issues ranging from MSME credit to surplus reserves

Need for more powers to the central board of the Reserve Bank of India (RBI), relaxation in prompt corrective action plan for state-owned banks and providing a line of credit for non-banking financial institutions will come up for discussion at the crucial board meeting of the RBI on Monday, according to a senior finance ministry official.

The meeting comes on the back of the ongoing tussle between the RBI and finance ministry regarding surplus transfer, liquidity management by the central bank and prompt corrective framework for public sector banks.

In all, there are 19 items that will be taken up for discussion. One of the items, "Item No. 8" relates to giving more powers to the central board of the RBI. These powers currently vest with the committee of central board, which mainly comprises of the Governor and all Deputy Governors of the central bank.

"It was at May 15 board meet that the government raised this issue. However, no headway has been made yet. This will be discussed again on Monday," the official said.

He said the central board of RBI must be given more powers to enable it to supervise better functioning of the central bank.

Among others, items 2-4 are the ones that will be pressed upon by the government nominees--namely Economic Affairs Secretary Subhash Chandra Garg and Financial Services Secretary Rajiv Kumar.

"Item No. 2" in the agenda mainly talks about devising a new formula based on which RBI must decide the capital reserves it needs to hold on its balance sheet.

Garg will make a presentation on the capital reserves issue," the official said. It was reported in August that the Centre has pegged RBI's excess capital holdings at Rs 3.6 lakh crore and was seeking it as a surplus, which must be transferred to the government.

According to finance ministry sources, RBI uses a very conservative formula to calculate its capital buffers, when compared to other central banks. Using a less conservative formula will lead to excess capital on RBI's books.

Deputy Governor Viral Acharya called the reserves on RBI balance sheet "a thorny issue".

The third item on the agenda, on which Kumar will make a presentation, will be to relax norms of RBI's prompt corrective action on stateowned banks that has restricted 11 such banks to lend along with other curbs such as distributing dividends and remitting profits.

"This is an item on which we feel RBI may agree to relax some restrictions on the public sector banks, let's see," the official said.

In April 2017, the RBI issued a revised set of benchmarks for banking sector with an attempt to move towards a more rule-based framework. Another item on the agenda of the meeting is giving a line of credit to the non-banking financial sector to tide over the liquidity crisis that arose after infrastructure finance company Infrastructure Leasing & Financial Services Ltd defaulted on its debt repayments.

However, most non-banking finance companies have successfully rolled over their debt repayments and the liquidity crunch has abated to an extent. "The sense is that NBFCs have been able to roll over and meet their commitments. So the government may not push hard the RBI on this one," he said.

Lastly, the RBI board will likely review restructuring of loans of up to Rs 25 crore given to micro, small and medium enterprises.