The Reserve Bank of India (RBI) board held a marathon meeting in Mumbai on Monday between the central bank and the government over key issues.
The RBI has an 18-member board, which includes four deputy governors, government nominees – Department of Economic Affairs Secretary S C Garg and Financial Services Secretary Rajiv Kumar, besides non-official directors, including S Gurumurthy and Satish Marathe.
Here are 7 things to know about this big story:
- In a statement after the meeting, the Reserve Bank said the Board has decided to examine the Economic Capital Framework.
2. The volume of excess reserves was one of the key points of differences between the government and the Bank. S Gurumurthy, one of the government-nominated members of the Board, said while studies suggest that reserves could be 12 to 18.7 per cent of assets, the RBI has 27-28 per cent – which amounts to 3.6 lakh crore. Sources said the government contended that the excess could be used for development.
3. To provide relief to the Micro, Small and Medium Enterprises – which employs 12 crore people – the board advised the bank to consider a scheme for “restructuring of stressed standard assets” of borrowers with aggregate credit facilities of up to Rs. 25 crore, the RBI said. Under this, MSMEs in financial difficulties will get concessions from the bank.
4. Lending to non-banking financial companies and MSMEs was one of the key differences between the central bank and the government. While the bank took a hard line on the defaulters, the government wanted the bank to lend more to these sectors in view of the difficulties they faced during demonetization and the implementation of the Goods and Services Tax.
5. On banks listed for Prompt Corrective Action or PCA – a set of rules that come into action when ailing banks breach regulatory requirements – it was decided that the matter will be examined by the RBI’s Board for Financial Supervision. Contending that the existing framework of PCA is hurting credit flow, the government wanted the regulations eased.
6. ‘The board, while deciding to retain the CRAR (Capital to Risk (Weighted) Assets Ratio) at 9 percent, agreed to extend the transition period for implementing the last tranche of 0.625 percent under the Capital Conservation Buffer (CCB), by one year, i.e., up to March 31, 2020,’ the statement further said.
7. This could provide relief to banks that have massive bad debts and a low capital base. RBI has barred 11 state-run banks from lending and demanded that they shore up their capital base, which was another area of concern for the Centre.
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