It was a day of reckoning.
According to data provided by the RBI, it transferred Rs 50,000 crore in 2017-18 to the government. In the end, the bout ended in a tie, with no side declared victor! Both sides had the better sense to activate them to rebuild this fractured relationship where discussions had nearly come to a naught. The RBI board will hold its next meeting 14 December.
Finance Ministry nominees and some independent directors are expected to take on Patel and his four deputies over issues ranging from MSME credit to the central bank's reserves, though both sides are in favour of reaching a common ground. Relevantly, RBI shied away from making decisions taken at the October 23 board meeting public.
Yes, it has bowed to the central government on some crucial aspects but not all.The RBI central 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 RBI board on Monday chose to set up a high-powered committee to examine issues related to surplus capital of Rs 9.69 lakh crore with the central bank and advised it to consider a scheme for restructuring stressed assets in the MSME sector.
The Board, while deciding to retain the CRAR at 9%, agreed to extend the transition period for implementing the last tranche of 0.625% under the Capital Conservation Buffer (CCB), by one year that is up to March 31, 2020.
One of the main issues that brought the RBI and the government at loggerheads pertained to the former's surpluses and dividend. The government says that the excess could be used for development.
It's worth noting, as The Wire's M.K. Venu has pointed out, that at least two committees have been formed in the last 20 years to examine the very same issue.
On this, the economists at CARE said, "This will be a positive for the SME sector which is facing various challenges". Diluting the PCA on these near-sick banks would mean undoing part of the work the RBI has done so far as far as NPA clean-up goes.
This rigid stance appears to have been avoided, with the RBI now setting up a new committee to examine the economic capital framework (ECF) of the central bank. The banks put under the PCA framework include 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. But, ultimately, the RBI has in-principle agreed to this demand.
However, no decision was taken on issues related to easing credit flow to MSMEs.
Overall, in CARE's view, after considerable discussion and debate on these issues by the government and other experts, the Board of Directors have addressed some of the critical issues. The RBI was earlier unwilling to consider any loan recast scheme for small units as the banking sector is already reeling under the impact of a huge pile of bad loans.