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
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.