Government wants panels within RBI for oversight

Galtero Lara
Noviembre 17, 2018

Prime Minister Narendra Modi's administration has recommended that the board of the Reserve Bank of India draft regulations to enable setting up panels to oversee functions including financial stability, monetary-policy transmission and foreign-exchange management, the people said, asking not to be identified as the discussions are private.

Gurumurthy favoured relaxing of prompt corrective action (PCA) framework for stressed banks and easier flow of credit to MSMEs which have been hit hard by demonetisation and GST. The body has the powers to frame rules under section 58 of the Reserve Bank of India Act, 1934, and no legislative change is required, the people said.

India's monetary policy makers and government officials will meet Monday in a board meeting that promises to be anything but its usual tiresome affair. Terming revision in PCA norms a matter of dispute, Gurumurthy said: "If capital adequacy is the only ground, then much of this problem won't be there".

ET had reported earlier this month that this was one of the almost dozen issues raised by the government for discussion with the RBI under section 7 of the RBI Act.

For a nation that relies on imported capital to fund investment, failure to reach middle ground threatens to erode investor confidence in the world's fastest-growing major economy.

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The government can still have its way with the RBI by invoking a rule that hasn't been used in the central bank's 83-year history.

Apart from the reserves transfer, the central bank's prescription for capital adequacy ratio, a measure of a bank's financial strength, of 9 percent is also a thorny issue between the two. The other 13 members include two government representatives, seven government-appointed non-official directors and four more from the central bank's local boards.

Swaminathan Gurumurthy, a chartered accountant and the co-convenor of Rashtriya Swayamsevak Sangh (RSS) affiliate Swadeshi Jagran Manch, had written to RBI governor Urjit Patel complaining against Acharya's comments on maintaining regulatory autonomy on October 26 speech.

"Government of India can issue recap bonds and say after the banks are recapitalised they will issue shares", he said.

Dollar-rupee relationship is working against rupee for the last several decades he said, adding now we are moving towards Yen.

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