RBI Board of Directors meet amid central bank’s standoff with Centre

RBI-Centre standoff: Crucial meeting of central bank’s Board of Directors begins

RBI-Centre standoff: Crucial meeting of central bank’s Board of Directors begins

RBI in the board meet also chose to improve liquidity. In another likely flashpoint, the government has proposed a supervisory role for the RBI board, which has several of its nominees.

The current economic capital framework followed by the RBI is not in public domain.

According to him, return on assets will break even by June 2019.

RBI reserves: The government has argued that the RBI has more assets than it requires.

On the one hand, the board has accommodated some of the demands of the government, including setting up a committee to review the Economic Capital Framework (ECF); on the other, it allowed the central bank to take the final decision on relaxing the Prompt Corrective Action (PCA) framework.

Rules pertaining to transfer of the central bank's surplus funds to the government, a key point of conflict between the two, was among the matters listed for discussion Monday, people familiar with the matter said before the meeting.

The Reserve Bank of India will form a panel to study the transfer of its surplus reserves to the government, Sachin Chaturvedi, one of the members of the 18-member board, said in an interview to Bloomberg News. Despite Union Finance Minister Arun Jaitley's confidence on achieving the 3.3 percent deficit target, top bureaucrats in Delhi privately speak of a developing fiscal crisis that could worsen post-December if global crude prices don't ease significantly.

The RBI statement says, "The Board also advised that the RBI should consider a scheme for restructuring of stressed standard assets of MSME borrowers with aggregate credit facilities of up to Rs 25 crore, subject to such conditions as are necessary for ensuring financial stability". The RBI Board, while deciding to retain the capital adequacy requirement at 9 per cent, agreed to extend the transition period for implementing the last tranche of 0.625 per cent under the Capital Conservation Buffer (CCB) by one year - up to March 31, 2020.

The RBI has been largely pushed to agree to the government line with respect to most of its demands. However, RBI believes that fund transfers could undermine its independence and hurt the markets.

The meeting is being held in the background of tension between the Centre and the RBI after Finance Ministry cited the never-used-before Section 7 of the RBI Act which empowers the government to issue directions tothe RBI Governor.

"The Reserve Bank of India Governor should work in sync with the government or otherwise resign", SJM's co-convener Ashwani Mahajan had said.

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