THREAT­ENED TURF

THE GOV­ERN­MENT AND THE RBI MAY HAVE MAN­AGED TO COB­BLE TO­GETHER A WORK­ING RE­LA­TION­SHIP FOR NOW, BUT THAT MAY CHANGE SOON. BY ANAND ADHIKARI / IL­LUS­TRA­TION BY AJAY THAKURI

Business Today - - CONTENTS - @anan­dad­hikari

The gov­ern­ment and the RBI may have man­aged to cob­ble to­gether a work­ing re­la­tion­ship for now, but that may change soon

THERE IS AN UN­EASY calm to the new work­ing ar­range­ment be­tween the gov­ern­ment and the Re­serve Bank of In­dia (RBI). So far, the gov­ern­ment has dialled down its ag­gres­sion and the RBI, which had gone pub­lic about the un­der­min­ing of its au­ton­omy, has also ceded some ground; they agreed to set up a com­mit­tee

to look into the gov­ern­ment’s claim on sur­plus cap­i­tal.

RBI re­fused to budge on re­lax­ing min­i­mum cap­i­tal ad­e­quacy re­quire­ment of 9 per cent but agreed to ex­tend by a year, the re­quire­ment for cre­at­ing a cap­i­tal con­ser­va­tion buf­fer. The board pre­vailed on the RBI to come up with a re­struc­tur­ing scheme for

MSMEs with ag­gre­gate loan ex­po­sure of ` 25 crore, while the gov­ern­ment gave up its rigid­ity for a higher loan thresh­old.

The main fric­tion be­tween the gov­ern­ment and RBI came on the lat­ter’s Prompt Cor­rec­tive Ac­tion (PCA) frame­work that has tagged 11 banks as ‘weak’. The is­sue of re­lax­ation of these

guide­lines will come up in the next board meet, and the RBI will not find it easy to bend on this, as most of the 11 banks are neck deep in losses with de­te­ri­o­rat­ing as­set qual­ity.

The cen­tral bank’s gov­er­nance struc­ture is also a big talk­ing point and those in the know ex­pect fire­works.

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