The central board of the Reserve Bank of India (RBI) under new Governor Shaktikanta Das will meet on Friday where the directors are likely to push for greater say in the decision making of the central bank.
The meeting will review the progress with respect of some of the decisions taken in the last meet on November 19. Among other things, the crucial board meeting is expected to take a stock of Micro, Small & Medium Enterprises (MSMEs), which is under stress due to demonetisation and implementation of the Goods and Services Tax (GST).
The meeting comes in the backdrop of surprise resignation by Urjit Patel earlier this week citing personal reasons.
Reserve Bank of India (RBI) Governor Urjit Patel resigned on December 10 in an abrupt move that followed days of a bitter row between the central bank and the government over surplus reserves.
Patel, whose term was to end on September 2019, thus became the first RBI Governor since 1990 to resign from his post.
According to sources, one of the key agenda for the upcoming board meeting will be governance issue — the role of central board in the decision making of the RBI.
Given the current structure, the central board plays advisory role but there is growing clamour to make it operational and have greater participation in key decisions of the central bank.
The government as one of important stakeholders also wants greater involvement in the RBI’s decision making as it feels the current practice leaves it out on many critical issues like single-day default turning a loan into an NPA, sources said.
However, former governors and other experts have pitched for the independence and autonomy of the RBI and want the board to play advisory role with given composition.
The rift between the government and the RBI surfaced after Deputy Governor Viral Acharya in a hard-hitting speech pitched for “effective independence” of the central bank.
Acharya had said governments that do not respect central bank’s independence would sooner or later incur the “wrath of financial markets, ignite an economic fire and come to rue the day they undermined an important regulatory institution”.
Acharya emphasised that undermining a central bank’s independence is akin to committing a “self-goal” for any government.
The central board of the RBI is headed by the governor and includes two government nominee directors and 11 independent directors. Currently, the central board has 18 members, with the provision of going up to 21.
Meanwhile, the Congress has accused Prime Minister Narendra Modi’s government of being bent on “snatching” the contingency reserves of the RBI amid a tussle that has seen the central bank officials call out for greater autonomy.
The opposition said the government was seeking around Rs. 3.6 lakh crore from the central bank to distribute electoral sops ahead of the general elections.
Amid growing tensions with the central bank, there were reports that the Finance Ministry had invoked never-before-used powers under Section 7 of the RBI Act allowing it to issue directions to the central bank governor on matters of public interest.
Signalling a temporary truce after a marathon nine-hour-long meeting on November 19, the Reserve Bank and the government had agreed to refer to an expert committee the contentious issue of appropriate size of reserves that the RBI must hold, while restructuring of stressed loans of small businesses would be considered by the central bank.
Meanwhile, soon after taking reins of the RBI, Shaktikanta Das said, he will try to uphold the autonomy, credibility and the integrity of the “great institution” and take every stakeholder, including the government, along in a consultative manner.
The former Economic Affairs Secretary, who took over as the 25th Governor Wednesday said, he will take measures which the economy requires in a timely manner.
On the second day, he held consultation with heads of the Mumbai-based public sector bankers to discuss issues faced by them.
It is expected that relaxation of the Prompt Corrective Action (PCA) framework for weak banks would also come up for the discussion under the new the governor.
Of the 21 state-owned banks, 11 are under the PCA framework. These are Allahabad Bank, United Bank of India, Corporation Bank, IDBI Bank, UCO Bank, Bank of India, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Dena Bank and Bank of Maharashtra.
The PCA framework kicks in when banks breach any of the three key regulatory trigger points — namely capital to risk weighted assets ratio, net non-performing assets (NPA) and return on assets (RoA).
With regard to economic capital framework, the new governor said as decided in the board meeting an expert committee in consultation with the government will be constituted soon to examine the issue.
(With PTI inputs)