RBI Board meeting today, which governs governance reforms in RBI

Indian Headquarters in Mumbai (Express Photo / Pradip Das)

The government has applied for discussion of governance in India Reserve Bank and an appropriate framework for economic capital during the meeting of the central bank scheduled Monday, sources told The Indian Express. Both sides, says sources, have covered a broad basis in addressing two issues: Ensure relief and more credit to small and medium-sized businesses, and ease restrictions on state-owned banks to increase lending.

Governance in the central bank is part of the meeting agenda, sources said. The government is also looking for an advisory process in the decision-making process to adapt the overall economic policy framework, given the differences with the central bank in many cases, says sources.

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These differences prompted the government for the first time to invoke a provision in the RBI Act § 7 to begin the formal process of consultation with the RBI governor on matters like facilitating the fast-paced PSU (PSA) Action Program (PSA), increasing liquidity and credit to medium and small businesses and non-bank finance companies (NBFCs) and transfer additional RBI profits to the government.

Sources said that the meeting of RBI's central government will probably develop solutions to issues related to the PCA framework and liquidity for small and medium-sized businesses and the NBFC. The regulator looks at a possible restructuring of loans to MSME, including the size and cutoff to provide relief to such borrowers.

But they said the government could push for major changes in the decision-making structure in RBI. "The government's idea is that the RBI has taken a number of important measures that are important to the economy, but with less responsibility, says sources.

Eleven state-owned banks have been placed under the PCA framework. PCA is triggered when banks' finances worsen in the form of capital and return on assets that lead the regulator to impose restrictions, including on lending and payment of dividends, and increases the loan book. Sources said that a PCA review would take place in December and with the solution of some bad loans due to the insolvency law, lenders would be better able to be taken by this framework program.

Express Explained | Decoding RBI Central Board

"Unlike other financial regulators like IRDA or Sebi, there is no appeal authority, who can review the RBI decisions. In other financial supervisory authorities, the respective boards take the decision. In the case of the RBI, the governor and the deputies take the decision. The RBI Board has only an advisory role, "said official sources.
Central Bank Management is considered a" sensitive issue ", given the RBI's view that it has operational independence.

" In my mind, it is about improve RBI's corporate governance. In my opinion, RBI's steering has been somewhat weak. They may not be used to external board members who ask questions. Unlike other regulatory agencies, the RBI has been a largely unenrolled entity, "said KK Srinivasan, former wholetime member of the Board of Insurance and Development in India (IRDA).

According to a former director of the RBI Board, the governor made great decisions with the board that only has an advisory role. "When I was in the RBI board, there was a peaceful cooperation. The intersection between the RBI and the government never came out of hand or reached this level. The board informed only governor of various circumstances, "he said.

RBI observers say the government has prepared for action for a while. On 7 August, S Gurumurthy, affiliated with Swadeshi Jagran Manch, appointed the RBI Central Board What further upset RBI officials were moved to cut Nachiket Mother's office on the RBI Board in September, at a time when more than half of his service was completed.

According to sources, Gurumurthy raised the issue of funding for small and medium-sized companies at the previous RBI board meeting in October, and of surplus reserves. The argument is that the RBI maintains or maintains surplus reserves with current reserves of more than 26 percent of its total assets relative to the global average of 14 percent.

The RBI Board has adopted a economic capital framework – capital required to protect or protect the central bank against future shock or loss.

The view of something A board member of the board is that the RBI holds surplus reserves and that the government, which is the owner or sole proprietor, should receive a greater proportion of profits or dividends.

According to sources, the counting is a distinction between stock and flows in the bank's balance sheet. "This is because the central bank has a large share of foreign securities against its foreign reserves. The gains in these securities, such as US government bonds, securities in other central banks, AAA-rated units, gold and domestic securities, are fictional and it is important to distinguish In addition, we must take into account the fact that RBI is the lender of the last resort and must ensure financial stability, says the sources.

They said that the economic capital framework and the question of transferring profits to the government may take time to pick up and The board may prefer to have a committee to address these two issues and about government.

Indian Express reported on November 6 that at the heart of the RBI government there is a proposal from the Treasury that wants to transfer a profit on Rs 3.6 lakh crore, more than a third of the total rs 9.59 lakh crore reserves from the central bank, to the government.

Another questionable issue, sources said, e is the capital requirement of banks, with the government and its nominated pitching to adapt it to the 8% international Basel requirement; The RBI has insisted on 9 percent.
In addition, sources said that RBI's 12-winding abolition of all loan standards was unilaterally taken by central government without consultation with the government.

RBI deputy Viral Acharya warned last month that "governments that do not respect the independence of the central bank will soon wreak havoc of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution." These comments led to a strong response from the government, including Finance Minister Arun Jaitley and Secretary Economy, Subash Garg, on the RBI Board.

The Ministry of Finance said that while the independence of RBI "is important", both the government and the RBI must "be governed by the public interest and the requirements of the Indian economy."

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