RBI, center near the burial of the hatchet, Urjit Patel might not resign: sources

NEW DELHI / MUMBAI: The Indian government and its central bank are on the verge of resolving some of their political differences, two sources said in talks, seeking to defuse tensions that threatened to make investors nervous.

Although the fracture is far from cured, sources indicated that sufficient progress had been made to avoid acrimony at a meeting of the board of directors of the Reserve Bank of India (RBI) next Monday. The threat of resignation of RBI governor Urjit Patel, reported by some newspapers last week, would also be ruled out for the moment, they said.

The precarious truce risks seeing the RBI soften some loan restrictions to help the government boost the economy, the sources said. A source said that the RBI could agree to modify the restrictions on loans to improve the flow of credit to small businesses with a loan limit of 250 million rupees ($ 3.4 million) .

Neither the RBI nor the Ministry of Finance responded to requests for comment for this article. The Prime Minister's Office declined to comment.

It is not known how much Prime Minister Narendra Modi played in defusing tension. Local media reported that Modi had met Patel last week with the aim of resolving the disputed issues, but officials from the Prime Minister's Office and the RBI said they were not aware of such a meeting.

Modi had appointed Patel Governor of the RBI in 2016 for a three-year term ending in September of next year.

For weeks, government officials in New Delhi lobbied the Mumbai-based RBI to subscribe to various requirements, ranging from reducing restrictions on loans to surrendering excess reserves to the government. This prompted RBI deputy governor Viral Acharya to warn last month that undermining the independence of a central bank could be "catastrophic", thus bringing the quarrel into the open.

It was expected that tension would rise at Monday 's meeting, with government officials on the board seeming to be putting pressure on Patel and accusing the RBI of having to go to court. be uncompromising with the demands of the government.

It seems likely that there will be a more constructive atmosphere with agreement on some issues and controversial issues outstanding for another day, sources said.

I can not accept everything
The government is keen to further stimulate the economy before next year's elections, as many farmers' incomes have been affected by low crop prices. At the same time, he does not want a crisis with the central bank, which could seriously affect investor sentiment and give a political burden to the opposition party, Congress.

"The government understands that the regulator will remain a regulator and can not accept all demands," said a government official, who refused to give his name to the RBI.

Although the official did not give any details about the solutions being considered with the RBI, he acknowledged that the government did not want to trigger Patel's departure at such a sensitive time.

There are five key state elections in the coming weeks and a general election is scheduled for May. The congressional party has already harbaded the government over allegations of corruption as part of a military plane deal with France and internal strife between the highest officials of the Central Bureau of the US Army. 39, investigation (CBI).

A board member of the RBI said that the idea that both parties wanted a healthy economy was a way to ease tensions. It was just a question of how to get there. "The main problem is how to stimulate credit growth," said the MP, referring to the credit crunch facing small businesses.

Secretary of State for Economic Affairs, S. Garg, should make a presentation at the board meeting to outline the concerns of the Department of Finance and could raise the issue the transfer of excess cash reserves held by the RBI, said these sources.

The board member said that a group of experts could be set up to determine the appropriate level of contingency reserves for the RBI, thus giving a real boost to this issue. The RBI put in place a so-called corrective action plan in 2014 for 11 state-run banks with bad loan issues and depleted capital. The plan included restrictions on risky lending and, according to RBI officials, banks' loan growth has fallen to zero and has remained there since 2016, after 10% in 2014.

According to the board member of the RBI, the government wants the board to relax these restrictions and lower the capital requirements for the 11.

Some refinements in the balance sheets of these lenders could give the RBI room to maneuver, although it prefers to give more time to the repair process, another official said informed of discussions at the central bank .