Centre, RBI walk extra mile

The government and the Reserve Bank of India (RBI) stepped back from the brink and found a middle ground, belying expectations that a rare confrontation will escalate even as they gave each other crucial space to revisit their positions on Monday.

Given that the contentious issue of liquidity—particularly pertaining to non-banking financial companies (NBFCs)—is yet to be addressed to the satisfaction of the Union government, the truce is an uneasy one. The finance ministry believes NBFCs are facing an acute liquidity crisis, which was spilling over into the real estate sector and small businesses.

After a marathon board meeting that lasted more than nine hours, RBI made concessions on capital adequacy of banks, while two contentious issues of transfer of surplus reserves and relaxing norms for weak banks were referred to committees. With this, the threat of invoking Section 7 of

the RBI Act that would have brought the central bank-government relationship to a new low now seems to have passed.

“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 board has advised RBI to let banks recast loans up to ₹25 crore given to micro, small and medium enterprises (MSMEs).

The issue of transfer of excess RBI reserves to the central government has been referred to an expert committee, the membership and terms of reference of which would be finalised jointly by the government and RBI.,