Editor's Take | RBI’s crucial board meeting: Will the rift end?

RBI vs Govt

Sources said the government and Reserve Bank of India (RBI) are looking to reach at an agreeable solution with respect to relaxation of the Prompt Corrective Action (PCA) framework and easing of lending norms for the MSME sector.

The report also said that the RBI would stay strict on bad loan norms and wanted the government to commit more for the health of state-run banks.

As a result of the relaxation, some banks may come out of the PCA framework by the end of this fiscal. BusinessToday.In Editor Rajeev Dubey talks about the three most contentious issues between the central bank and the government which are being discussed at the much-awaited meet. RBI also feels that capital transfers should be modulated as contingency reserves are necessary for the central bank. Either way, there is considerable nervousness in policy circles as well as the markets, both in India and overseas, as to how the curtain comes down on this unprecedented confrontation between RBI and the union government. The central bank and the government have been warring over these issues for almost a month.

The RBI's central board now has 18 members, though the provision is that it can go up to 21. Government sources told IANS that the RBI said that inflation was under control, and that it had taken no measure to tighten liquidity in the system. The PCA has imposed lending and other restrictions on these weaker lenders, hitting the MSMEs and NBFCs hard.

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The mutual fund (MF) industry has sought a meeting with the Securities and Exchange Board of India (Sebi) at the earliest, while seeking clarification on the market regulator's diktat that all scheme-related expenses should be booked in respective schemes. Globally, PCA kicks in only when banks slip on a single parameter of capital adequacy ratio, and the government is in favour of this practice being adopted for the domestic banking sector as well. The RBI and the Centre are at loggerheads over various issues but the bone of contention between the two is reserves that the RBI holds.

Mumbai: A Reserve Bank of India board meeting began on Monday with investors waiting to see if central bank and government policymakers could bridge differences over several key issues.

Economic Affairs Secretary Subhash Chandra Garg had also clarified that the government wasn't in any dire needs of funds and that there was no proposal to ask the RBI to transfer Rs 3.6 lakh crore. Reports suggested the finance ministry had proposed to the RBI to transfer a surplus of Rs 3.6-lakh crore from the RBI's reserves to the government, to be managed jointly by both. "The facts which are emerging in the public space, the government wants the RBI to part with Rs 3.6-lakh crore out of Rs 9.59-lakh crore which constitutes the cash reserve of the RBI".

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