"Judgment Day": Despite the friction with the government, all eyes are on the RBI board meeting tomorrow

The RBI board meeting will be held on Monday. (Express Photo by Pradip Das)

In the midst of a persistent divide between the Union government and the central bank, all eyes will be on the Reserve Bank of India (RBI) board of directors meeting Monday. Ministry of Finance candidates and some independent directors are expected to attack Governor Urjit Patel and his team for issues ranging from MSME liquidity to the economic capital framework.

The meeting comes as Urjit Patel could be removed from office, although PTI said the governor would present a united front, the 18-member RBI central council would support the central bank's mission of to clean up bank balance sheets PTI reported.

MSME, liquidity issues to discuss

During the meeting, the RBI should consider a special waiver for micro, small and medium-sized enterprises (MSMEs) and non-bank financial corporations (NBFCs), which have been facing liquidity problems. Under the shock of demonetization and the GST, this decision could serve as a respite for MSMEs. S Gurumurthy, a member of the central council, said Thursday that the demonetization and goods and services tax (GST) had "hit" the micro, small and medium enterprises (MSME) sector, asking for more credits for the sector " private money "and" stolen credit ".

In addition, the latest RBI data indicate that banks' outstanding credit to the micro, small and medium enterprise (MSME) sector experienced a contraction for the first time in 14 months in September 2018.

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Both the government and the bank will seek to reach an agreement on easing the standards for the Framework for Rapid Corrective Action (PCA). Of the 21 state-owned banks, 11 fall under the CPA framework, which imposes credit restrictions and other restrictions on weak lenders. As a result of this easing, some banks may move out of the CPA framework at the end of this year. The PCA framework comes into effect when banks breach one of the three key regulatory triggers, namely risk-weighted capital / assets ratio, net nonperforming assets and asset returns.

Reserve Bank India (RBI) Governor Urjit Patel is expected to present a united front. (Express Photo by Prashant Nadkar)

In the midst of tensions with the RBI, the central government had hinted that it was invoking Article 7 of the RBI law, which had never been used before, giving it the power to give instructions to the central bank, raising questions about its autonomy and independence. Last month, RBI deputy governor Viral Acharya spoke of the central bank's independence, saying any compromise could be "potentially catastrophic" for the economy.

The setting of the economic capital, another strong point

Discussions are also scheduled on the economic capital framework, which governs the capital conditions of the RBI and how to transfer its surplus to the government. On November 6, the Indian Express announced that a proposal from the Ministry of Finance to transfer to the government a surplus of 3.6 million rupees, or more than a third of the total crore reserves of 9, 59 million rupees from the central bank, has not been accepted by the government. the RBI. However, Economic Affairs Secretary Subhash Chandra Garg tweeted that reports that the government would have asked for a huge transfer of surplus funds were false.

Finance Minister Arun Jaitley said Saturday that growth should not be held back by limiting the availability of credit and liquidity. It is necessary that the growth process does not suffer from the cleaning of the banking system of "sins committed collectively" in 2008-14, when the regulatory mechanisms also neglected the high accumulation of debts, he said .

Govt, RBI heading for confrontation: Chidambaram

Former Finance Minister Chidambaram, who called "judgment day" on November 19, said the government and the RBI were heading for a "clash" at the bank's board meeting on Monday. . "The government is determined to" capture "the RBI to take control of the reserves. The other so-called disagreements are just a smokescreen, "he tweeted. Chidambaram said, "The central bank is nowhere in the world a company run by a board of directors. To suggest that private entrepreneurs direct the governor is an absurd idea.

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