India govt, central bank signal truce after marathon meeting
new delhi — India’s central bank signalled a compromise with the government by agreeing to study a demand for sharing a part of its capital — an issue that had triggered a public spat between the monetary policy makers and their political bosses.
The Reserve Bank of India will form a panel to consider the funds transfer to the government, the central bank said in a statement after the board meeting that lasted a little over nine hours. It, however, did not immediately yield to demands for easing lending norms for weak banks while retaining capital buffers for banks at 9 per cent.
“Both the RBI governor and the finance ministry walked the extra mile,” Sachin Chaturvedi, a member of the board said in an interview to Bloomberg. “They were flexible on several issues.”
The government and the RBI have been sparring over how much capital the central bank needs and how tough its lending rules should be. For a nation that relies on imported capital to fund investment, the reaching of a middle ground is key to retaining investor confidence in the world’s fastest-growing major economy.
The rupee advanced and bonds rallied on Monday before the meeting concluded, and amid optimism a common ground would be reached. The currency gained 0.4 per cent to 71.6575 against the dollar (19.51 against the UAE dirham), while the benchmark 10year bond yield fell 3 basis points to 7.79 per cent. One-month offshore non-deliverable rupee forwards rose 0.4 per cent as news of the board meeting trickled in.
The board discussed Basel regulatory capital framework, a restructuring program for stressed small businesses, the health of weak banks placed under the so-called prompt corrective action and the
economic capital framework of the RBI, the central bank said. The 18-member board advised the RBI to consider restructuring of loans of up to 250 million rupees for small borrowers, it said.
Getting the RBI to agree to its demands will help Prime Minister Narendra Modi’s government meet
budget goals by using a part of the central bank’s reserves. The government also wanted norms for some banks to be relaxed so they can lend easily and keep the economy firing ahead of an election next year. An RBI panel will review those norms, the statement said.
The central bank — led by Governor
Urjit Patel — had pushed back against some of the moves earlier, keen to burnish its inflation-targeting credentials and clean up one of the world’s worst bad-debt piles. That approach has broadly helped anchor inflation expectations. The board will meet again on December 14, Chaturvedi said. —