RBI Board Meeting tomorrow; Achieving common ground on some key issues

New DelhiThe ongoing division with the government is expected to materialize at the crucial meeting of the RBI's board of directors on Monday, as Finance Ministry candidates and some independent directors will attack Governor Urjit Patel and to his team for issues ranging from MSME credit to central bank reserves, although both parties are in favor of finding common ground.

Some reports and requests for Governor resignations have been reported, but sources have indicated that Patel may give way under pressure and instead advocate for a strong defense of central bank policies regarding strict standards for recognition of NPAs as well as taken to ease tensions. supply of credit to MSMEs.

Patel and his four deputies, all members of the 18-member RBI Central Board, will present a united front, while some independent directors will also be united.
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should support the central bank's mission to clean up banks' balance sheets, sources said.
The central council, chaired by the governor of the RBI, should discuss the issues mentioned in the agenda, which were distributed to council members in advance.

Non-agenda items may also be raised at the meeting, with the permission of the chair.

The central board of the RBI currently has 18 members, but is expected to go up to 21.

Among its members are Governor Urjit Patel and his four deputies as "full-time official directors", while the other 13 were appointed by the government, including two heads of the Ministry of Finance – the secretary for economic affairs and the secretary of financial services.

Sources said the government and the Reserve Bank of India (RBI) were looking for an acceptable solution in terms of easing the framework for rapid corrective measures (PCAs) and easing loan lending standards. MSME sector.

Without this board meeting, the issue of easing the PCA framework should be resolved in the coming weeks, they added.

As a result of this easing, some banks may move out of the CPA framework at the end of this year.

Of the 21 state-owned banks, 11 fall under the CPA framework, which imposes credit restrictions and other restrictions on weak lenders.
These are Allahabad Bank, United Bank of India, Bank Corporation, IDBI Bank, UCO Bank, Bank of India, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Dena Bank and Bank of Maharashtra.

The PCA framework comes into effect when banks breach one of the three primary triggers of regulation, namely risk-weighted capital / assets ratio, net nonperforming assets and return on assets.

On a global scale, the PCA only intervenes when banks slip on a single parameter of the capital adequacy ratio, and the government is supportive of adopting this practice as well for the national banking sector.

The RBI should also consider a special waiver for micro, small and medium enterprises (MSMEs) and nonbank financial corporations (NBFCs) that have been facing liquidity problems.

The government believes that the MSME sector – which employs about 12 million people and plays a vital role in the economy – needs some support after being affected by the demonetization and implementation of the Goods and Services Tax (GST).

However, the central bank opposed the government's request because it considers the sectors as vulnerable.
At the same time, 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 regulatory mechanisms also neglected the high accumulation of debts, he said .

In the face of growing tensions with the central bank, the Ministry of Finance had initiated discussions under Article 7 of the RBI law, never used before, which empowers the government to give instructions to the RBI governor .

In a speech last month, RBI deputy governor Viral Acharya spoke of the central bank's independence, saying any compromise could be "potentially catastrophic" for the economy.

In his first public comments since the conflict between the RBI and the Finance Ministry came to light, Swadeshi ideologue, S Gurumurthy, said last week that the stalemate "is not a happy thing at all. "

Gurumurthy, who was appointed to RBI's board of directors a few months ago, said India's required capital ratio was 1% higher than Basel's global standards. He also advocated for a relaxation of lending standards for small and medium-sized enterprises, which account for 50% of the country's GDP.

Swadeshi Jagran Manch, an affiliate of RSS, said last month that the governor of the RBI should work in tune with the government or resign.
"The Governor of the Reserve Bank of India should work with the government or resign in any other way," said SJM co-leader Ashwani Mahajan. A flawless stay