HYDERABAD: The RBI-government standoff that played out in the past 27 days finally ended on Monday, with both sides reaching a common ground on four out of the 12 contentious issues.
With regard to RBI’s surplus reserves, the foremost among the flashpoints, the board decided to set up a 4-5 member committee to be headed by an outsider. Interestingly, the committee will be tasked to determine the percentage of provisions RBI should apportion out of its future profits. It will not study if existing surplus should be transferred to government, as widely speculated. RBI has `9.6 lakh crore reserves, which some argued belonged to the government, adding an unusual testiness to Monday’s proceedings.
The proposed panel will include representatives of RBI and government, but the decision on appointing members rests with the finance minister. “A decision on the names will be finalised by the FM next week and it will have to submit its report within 90 days,” an RBI board member told The New Indian Express.
He added that one of the points of disagreement in the past was whether the committee should look into transfer of existing reserves or about future profits. “Today, we found the solution and the committee will look into the future profits alone,” he explained.
TNIE was the first to report on November 1 that an external committee should be set up to study RBI’s surplus distribution policy. The board passed the resolution setting up a committee to review RBI’s Economic Capital Framework.
Meanwhile, during its nine-hour meeting in Mumbai, the board reached a consensus a restructuring scheme for stressed MSMEs, relaxing Basel norms for banks, albeit marginally and re-tasking RBI’s Board for Financial Supervision to determine the efficacy of Prompt Corrective Action and if ailing banks can achieve a turnaround. Interestingly, the board decided to push the other contentious issue of liquidity and other issues to its next meeting on December 14.
“The board, while deciding to retain the CRAR at 9 per cent, agreed to extend the transition period for implementing the last tranche of 0.625 per cent under the Capital Conservation Buffer, by one year — up to March 31, 2020. With regard to banks under PCA, it was decided the matter would be examined by the Board for Financial Supervision of RBI,” the RBI statement said.
Surplus reserves
Demand: Govt sought transfer of past profits parked as reserves
Outcome: Board to set up a committee to be chaired by an outsider to look into apportioning of future profits and provisions
PCA norms
Demand: Govt sought relaxation of PCA norms saying it was choking banks
Outcome: It’ll be examined by the Board for Financial Supervision (BFS) of RBI
Basel norms
Demand: CRAR for banks at 9 per cent, considered too high; Basel norms are set at 8 per cent, which govt sought reductions for domestic banks at least
Outcome: RBI retains CRAR at 9 per cent, but extended the transition period for implementing the last tranche of 0.625% under the Capital Conservation Buffer, by one year
Credit to MSMEs
Demand: Liquidity squeeze throttled MSMEs; relaxations sought for easier credit lending and restructuring of bad loans
Outcome: Board asked RBI to introduce a scheme for restructuring of stressed standard