The government and the central bank have been at loggerheads over various issues, ranging from necessity for a special liquidity window for NBFCs to going easy on banks under Prompt Corrective Action (PCA).
The nine-hour marathon meeting of the Reserve Bank of India's central board saw mutual agreement being reached on several issues amid the ongoing rift between the government and the central bank.
According to a post-meeting release by the central bank, the board discussed the Basel regulatory capital framework, a restructuring scheme for stressed MSMEs, bank health under Prompt Corrective Action (PCA) framework and the Economic Capital Framework (ECF) of RBI.
The Board decided to constitute an expert committee to examine the ECF, the membership and terms of reference of which will be jointly determined by the government and the RBI.
It also advised that the RBI should consider a scheme for the restructuring of stressed standard assets of MSME borrowers with aggregate credit facilities of up to Rs 25 crore, subject to conditions of ensuring financial stability.
While deciding to retain the capital to risk-weighted assets ratio (CRAR) also called the capital adequacy ratio (CAR) at 9 percent, the RBI board 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.
With regard to banks under PCA, it was decided the matter will be examined by the Board for Financial Supervision (BFS) of RBI.
Governor Urjit Patel is believed to have said the bank should not send the wrong message by watering down rules.
The board meeting ended on a 'cordial' note. RBI's next meeting will be held on December 14, according to various media reports. The next meeting is likely to focus on liquidity and governance issues.
Commenting on the outcome of the meet in a speech at an SBI Capital Markets event, Sanjeev Sanyal, Principal Economic Advisor said, “Even if we accept that Basel-III norms are globally accepted, we feel that Basel-III norms are being a bit excessive. The same thing is with PCA bank. We cannot have a Hotel California approach regards to PCA banks. We need to have a plan on how these institutions should come out of PCA. There is no point in having this highly capitalised central bank and highly capitalised banking system, none of which supports the financial requirements of lower ring of economy,”
The 18-member board meet was attended by RBI Governor Urjit Patel, four deputy governors, government nominees -- Department of Economic Affairs Secretary Subhash Chandra Garg and Financial Services Secretary Rajiv Kumar, besides non-official directors, including S Gurumurthy and Satish Marathe.
Other directors on the board include Tata Sons' N Chandrasekaran and Sun Pharma chief Dilip Shanghvi.
