RBI Board meeting HIGHLIGHTS: The much-awaited Reserve Bank of India (RBI) board meeting has concluded after nine gruelling hours, in which a presentation on the central bank reserves was made in front of the board in the first half.
The meeting was scheduled amid reports of rising tensions between the central bank and the government. A range of issues were on the table in the meet today ranging from the surplus reserves of the central bank to credit to MSMEs.
It was also expected that the government and central bank would talk in detail on the issue of ‘appropriate’ economic capital framework. Meanwhile, Finance Minister Arun Jaitley on Saturday had said that the economic growth must not be stalled by restricting credit availability and liquidity. He said that the cleaning up of balance sheets of the banks due to “collectively committed sins” between 2008-14 should not slow down the growth.
The much-awaited meeting of the full RBI Board, being watched keenly by the market, ended reportedly on a cordial note after nine gruelling hours on Monday. Read full story
Every year the central bank transfers the balance of its profits to its owner, the government, as per the RBI Act, after making provisions for bad or doubtful debts, contribution to staff, depreciation of assets and superannuation funds. The RBI board has decided to form a panel to look into the surplus transfer mechanism of the central bank, which has been one of the issues of conflict between the government and the RBI. Read full story
The RBI board has decided to form a panel to look into the central bank capital transfer to the government. The government wanted Rs 3.6 lakh crore from the RBI, but it had refused.
Here’s RBI Reserves Break-up:
Capital and Other Reserves: Rs 6,733 crore
Contingency Fund: Rs 2.5 lakh crore
Currency and Gold Revaluation Reserves: Rs 6.71 lakh crore
Total Reserves: Rs 9.7 lakh crore
The next meeting of the RBI board is likely to be held on December 14. Today’s meeting ended on a cordial note, Reuters reported, with the board deciding to form several committees to look into the issues, including RBI’s capital transfer, that caused the rift between the central bank and the government.
The RBI board has also decided that the central bank will take measures on improving liquidity and to ease restrictions on certain state-run banks’ reserve ratio, Reuters reported quoting sources.
The RBI board has decided to allow loan restructuring for Small & Medium Enterprises (SMEs), Reuters reported. The board has also decided to form committees to study several issues that caused the rift between the RBI and the government.
The RBI board will form committees on certain contentious issues including on central bank reserves. The committee will review the capital transfer to the government by the RBI, ET Now reported quoting sources.
The Reserve Bank of India (RBI) board meeting has concluded on a cordial note, Reuters reported. The central bank will take measures to improve liquidity. One of the reasons for the rift between the government and the RBI was the liquidity crisis in the NBFC sector.
After nine gruelling hours, the crucial RBI board meeting has concluded. Statement on the session is expected shortly.
One of the most contentious issues between the government and the RBI is the management of surplus. The government wants Rs 3.6 lakh crore from the RBI, a third of its reserves. However, former Chief Economic Advisor Arvind Virmani has said that it’s a bad idea. ‘Conversion of reserve assets into dividends to be used for current expenditures is a bad idea from the fiscal perspective,’ Virmani told FE Online.
“Conversion of reserve assets into dividends to be used for current expenditures is a bad idea from the fiscal perspective,” Virmani said. Read full story
The crucial meet of the Reserve Bank central board is still underway amid a rift between the central bank and the government over the future course of policies. In the first half of the meeting, a presentation on RBI reserves was made.
Former Finance Minister and senior Congress leader P Chidambaram has said that Section 7 of the RBI Act, under which the Modi government recently initiated consultation with the central bank, is like nuclear button. It should never be used. It is for the time when and if a governor goes rogue; not for normal situations, Chidambaram told CNBC-TV18.
The 10-year benchmark bond yield was at 7.80 percent compared with 7.82 at Friday’s close. Investors were on guard against any resurrection of the row between the central bank and government officials, but few were expecting fireworks as both sides have tried to dispel fears of a more serious falling out.
“Reserves have to be seen by keeping external debt in mind. Hence, the current reserves must not be given off,” Vipin Malik, former director of RBI told ET Now.
“Banks are not universal in nature; they are community specific and sector specific. Should we have the same set of rules for private banks and PSU banks,” says banking experts Charan Singh, adding that both PCA norms and the Basel norms, which have led to lending restrictions on the eleven PSU banks, need a revisit. Read full story
“Foreign investors will wait to get some cues from today’s meeting on the extent to which the central bank is autonomous, but it will be good for bond markets in the short-term if the RBI gives in to the government’s demand for more liquidity,” Reuters reported citing a dealer at a foreign bank.
Domestic bourses are focusing on RBI’s board meet to get cues on liquidity crunch with non-banking financial companies (NBFCs) and relaxing norms for state-run banks, analysts told PTI.
The BSE benchmark Sensex rallied over 300 points Monday to end at over a six-week high of 35,774.88 as investors widened their portfolios ahead of the RBI’s board meet outcome amid foreign fund inflows.
Swadeshi ideologue S Gurumurthy had last week said the capital adequacy ratio prescribed in India is 1 percent higher than the global Basel norms. He also pitched for easing lending norms for small and medium enterprises, which account for 50 per cent of the country’s GDP.
As a crucial meeting of the Reserve Bank of India (RBI) board is underway over a range of issues, Charan Singh, former RBI Chair Professor at IIM-Bangalore, opines that banks should not be stopped from lending as it is their primary role.
Read more: Crucial RBI board meet: ‘PCA, Basel norms not for India, homegrown rules needed’
The first half of RBI Board Meeting comprised presentation on RBI’s capital, CNBC TV18 reported citing unidentified sources.
Local news agency Cogencis, citing sources, also said the central bank was open to reviewing the corrective action plans, according to TV channel ET Now.
The RBI has an 18-member board, which also includes four deputy governors, government nominees department of economic affairs secretary S C Garg and financial services secretary Rajiv Kumar, besides non-official director including S Gurumurthy and Satish Marathe.
“The Reserve Bank of India Governor should work in sync with the government or otherwise resign,” SJM’s co-convener Ashwani Mahajan had said.
RBI is open to review of PCA Banks’ Corrective Action Plan, but it would stay strict on bad loan norms, wire reports say.
“Foreign investors will wait to get some cues from today’s meeting on the extent to which the central bank is autonomous, but it will be good for bond markets in the short-term if the RBI gives in to the government’s demand for more liquidity,” a dealer at a foreign bank told Reuters.
The last RBI Board meet on October 23 this year was reported to be a stormy affair that lasted about eight hours. However, it ended up discussing only three of the 20 items on the agenda.
The RBI Central Board comprises 18 members, including five official directors namely Governor Urjit Patel and four deputy governors, N S Vishwanathan, Viral Acharya, B P Kanungo and Mahesh Kumar Jain. The RBI Act allows for a five-year term for the Governor and the deputy governors, but it can also be less.
Economic Affairs Secretary Subhash Chandra Garg had clarified a few days back 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.
RBI independent director and RSS ideologue S Gurumurthy had recently said that it should be discussed how much reserves the RBI should maintain. He said that no central bank in the world maintains such high levels of surplus at Rs. 9.6 lakh crore.
The government on November 9 had said it was discussing an “appropriate” size of capital reserves that the central bank must maintain but denied seeking a massive capital transfer from the RBI.
The main issue behind the tussle between the RBI and the government is related with the surplus reserves in the bank. The central bank has excess reserve of Rs. 3.6 lakh crore, which, the government says, can be used for development, media reports say. However, the RBI maintains that keeping extra reserves are important in case of possible emergencies.
In a speech last month, RBI Deputy Governor Viral Acharya had talked about preserving the independence of the central bank. He had argued that any compromise between the bank and the government could be “potentially catastrophic” for the economy.
Even as the government is being currently seen as eyeing RBI’s surplus reserves, but 25 years back, it bailed out the same institution from a prospective loss, perhaps first time in its history, using its own budget. .
Read more: RBI vs Govt fight: How a ‘joint family’ in the past saved the day for central bank
Just ahead of the much-talked-about RBI Board meeting, Congress President Rahul Gandhi Monday had accused PM Narendra Modi of destroying institutions and hoped Reserve Bank Governor Urjit Patel has a “spine” and will show the prime minister “his place”.
Ever since the scale of ongoing conflict became public, the government and the RBI are meeting for the first time today to discuss key issues ranging from the reserves of the central bank to credit to MSMEs.
Read more: RBI board meeting today: Will government, central bank reach common ground? Key things to watch