Govt wrote three let­ters to RBI with a dozen de­mands

Financial Chronicle - - MON­E­TARY -

Re­la­tions be­tween the RBI and the North Block soured since late Oc­to­ber, af­ter the fi­nance min­istry man­darins started con­sul­ta­tions un­der the never-be­fore-used Sec­tion 7 of the RBI Act, which em­pow­ers the gov­ern­ment to di­rect the cen­tral bank to un­der­take cer­tain pol­icy mea­sures in pub­lic in­ter­est.

Ac­cord­ing to cen­tral bank sources, the gov­ern­ment had sent three let­ters to the RBI be­fore Oc­to­ber 10 with nearly a dozen de­mands, which were replied to within a week. The gov­ern­ment pri­mar­ily wants the RBI to help the strug­gling non-bank lenders and MSMEs get some liq­uid­ity sup­port, lib­er­alise the prompt cor­rec­tive ac­tion (PCA) frame­work on 11 of the state-run banks and un­der­take other steps that will help push growth, while RBI has been main­tain­ing a con­ser­va­tive stance avoid­ing any bad prece­dents.

The poll-bound gov­ern­ment, which is star­ing at fall­ing rev­enue and a likely fis­cal slip­page, also wants the RBI to part with a large por­tion of its Rs 9.6 tril­lion cash sur­plus, which the cen­tral bank has been sternly op­pos­ing.

As the pub­lic spat be­tween the two got wider pub­lic at­ten­tion, the RBI’s cen­tral board, at its Novem­ber 19 meet­ing, de­cided to climb down and set up a panel to study the quantum of cap­i­tal it re­quires apart from re­struc­tur­ing loans of up to Rs 25 crore to give a suc­cour to the trou­bled MSMEs.

At the pol­icy re­view on Wed­nes­day, the RBI said it is com­mit­ted to act as a lender of last resort to NBFCs but un­der­lined that it does not feel the ne­ces­sity do so now. It also formed a panel to look at the is­sues plagu­ing NBFCs, which will sub­mit its re­port in June 2019.

The fric­tions came to light through a pub­lic speech by deputy gover­nor Vi­ral Acharya, in which he warned of in­vestors’ wrath if the RBI’s au­ton­omy is com­pro­mised.

Af­ter re­ports of ac­tion un­der Sec­tion 7 came up, the gov­ern­ment had tried to ease ten­sions by stat­ing that au­ton­omy is “es­sen­tial” and an ac­cepted gov­er­nance re­quire­ment.

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.