NEW DELHI: Days ahead of a crucial Reserve Bank of India (RBI) Board meeting scheduled for November 19, S Gurumurthy, auditor, editor and also a director on the Board of RBI insisted that the FRBM (Fiscal Responsibility and Budget Management) Act, which restricts government borrowing should be amended, and that bank capital, NPA (non-performing asset) norms should be at the Basel level and no more than that.
The government had given up its right to print money when the FRBM law was passed in 2002, and that has robbed its ability to provide liquidity to segments when needed, Gurumurthy said. Further, replying to a query, he said, “The government can only take Ways and Means Advances (WMA), the question of borrowing from RBI is not an option for the government. So, the standoff between RBI and government is not a good thing at all,” he said.
Gurumurthy also questioned the 9 per cent capital prescription for Indian banks while even Basel (Basel III) norms are at 8 per cent. “I don’t know where the 9 per cent was thought of by the regulator,” he said.This has been a contentious issue and the RBI deputy governor had in a recent speech argued strongly on the need for higher capital detailing risks.
There are only four internationally active banks in India, why have a 9 per cent capital norm for all the banks, Gurumurthy went on to ask, and said this has left the banks with less money to lend. He pointed out how the MSME sector had taken the hit from demonetisation and GST and the sector needs credit. “If government says this (credit for MSME), media says government is disturbing independence of RBI,” Gurumurthy said.
The revision in the Prompt Corrective Action norms is an area of dispute between RBI and the government and if the issue is resolved, the trouble borrowers have with the banks would be resolved, he said.
He also came down heavily on the sudden and high provisioning for NPAs by the banks as per RBI norms. “Provisioning at one go has created the banking stress. Any policy that lacks gradualism produces shock,” he said.
Commenting on the issue of the RBI’s reserves, Gurumurthy observed that the government is only asking for a formulation of a policy on how much the RBI must have with it, and said most central banks do not have this kind of a reserve.