RBI vs Govt: Some in the Central Bank now ready for talks with Centre : 12-11-2018

Some directors on the Reserve Bank of India’s central board, who were earlier not on the same page as the government, are now open to discussions on many “contentious” issues, but want decisions such as those related to the capital base to be implemented after next year’s general elections to ensure that they are delinked from politics, according to people close to the situation.

While the agenda comprising nearly 20 items for the November 19 meeting is available with all the directors, on its part, the government is keen that immediate concerns such as more credit flow for micro, small and medium enterprises, liquidity for non-banking finance companies, and aligning bank regulations in line with global norms, instead of stiffer norms for Indian entities, be addressed.

Sources suggested that in recent weeks the liquidity situation has improved, easing some pressure on NBFCs. There is also the issue of Indian banks accessing foreign funds, which the government is keen on.

While the government is keen on key issues being discussed speedily, in case of other items such as reserves, only the broad framework is being proposed to be addressed at the November 19 meeting of the RBI board, which the Centre wants to be the forum for discussions given governor Urjit’s Patel’s reluctance to engage with stakeholders, including senior government officials.

People with knowledge of the situation said that some of the directors view the discussions around adequate reserves for RBI to be linked to demands for payment of higher dividend. An increased payout by the central bank will give the government more resources ahead of the elections, which may be splurged on populist schemes, they suspect. Last week, economic affairs secretary Subhash Chandra Garg had said that there was no move to seek a higher transfer from RBI at the moment.

Sources said it was unrealistic to expect dramatic outcomes at the November 19 meeting. They said there was still a lot of divergence, which cannot be resolved in a “few hours”.

“There is no right or wrong here. One needs to distinguish between stock and flow. Flow is profits of RBI that needs to be paid out. This is a legitimate discussion. The capital base or stock part is more complicated, there are lots of technicalities involved. One cannot be rushed into taking decisions on this. The RBI’s profits are expected to be much higher this year due to rupee depreciation and the currency that is fully back in circulation post demonetisation. So there might be an expectation of higher dividend,” the source added .

While the board has 18 members — including five RBI nominees, two government officials and 11 outside experts — several “independent directors” were seen to be be favouring the central bank’s management. But at the last board meeting on October 23 — which witnessed stormy exchanges between RBI nominees and a few outside directors and ended inconclusively — some of those from corporate India backed the government’s position on liquidity. After the meeting, some of them are seen to have been more  favourable to the government’s position on several of the issues, while working to bridge the gap between the two warring sides.

At the same time, some of the directors hold the view that the board should not get into nuts and bolts issues of the central bank’s operations and should limit itself to advising and guiding. The recent attempts by the government, including seeking consultations on at least three issues, is viewed as going beyond its remit.

Source : PTI


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