Skip to main content

RBI board reviews economy and liquidity, to hold talks on governance

Reserve Bank of India (RBI) Governor Shaktikanta Das chaired his first board meeting on Friday, discussing issues ranging from governance at the central bank to liquidity in the financial system. The board did not arrive at any decision but held extensive discussions on the governance structure in the RBI and the liquidity situation of non-banking financial companies (NBFCs) — two key areas of concern flagged by the finance ministry recently, sources said. “Good meeting of the RBI central board. Wide-ranging issues discussed,” Das tweeted.
On the governance framework, the board decided it would require further examination, according to the RBI’s statement. There was no discussion on the prompt corrective action (PCA) framework, which the government had asked the RBI to consider revising and bring some public sector banks (PSBs) out of it, sources said. The Board for Financial Supervision, led by the RBI governor, is expected to review the PCA framework in its next meeting. At present, 11 PSBs and one private bank are under the PCA framework and the government feels that it is affecting the credit flow.
Talking Points
  • Current economic situation, global and domestic challenges
  • Liquidity in banking and NBFC segments
  • Currency management and financial literacy
 
Two presentations were made by Economic Affairs Secretary Subhash Chandra Garg — one on the government’s proposal for governance reforms in the RBI and the other on the banking system, throwing light upon banks’ financials, credit flow and non-performing assets (NPAs). Financial Services Secretary Rajiv Kumar did not attend the meeting.
 
“Both the government and the central bank will reconcile their notes (on the RBI’s governance) and come back to the board in the next meeting. There was no commitment, though, from the new governor on whether governance reforms in the RBI were needed or not,” the person cited above said. The RBI issued a statement after the four-hour meeting. “The board reviewed, inter alia, the current economic situation, global and domestic challenges, matters relating to liquidity and credit delivery to the economy, and issues related to currency management and financial literacy,” it said. The next central board meeting is likely to be held before the upcoming Budget in February 2019.
 
According to sources, the RBI’s board meeting on Friday was “cordial” as Das got acquainted with various monetary, credit and regulatory issues faced by the economy. It was like a “usual” board meeting, unlike the previous two meetings, held on November 19 and October 24, which saw heated exchanges between the board members on a range of issues flagged by the government, another source said. The last two board meetings went on for eight-nine hours. The liquidity situation of NBFCs was discussed in detail, a board member said, requesting anonymity. “The numbers do not signal any liquidity crisis at present. But we have to be watchful of the situation. The RBI is monitoring the position on a daily basis. A systematic intervention is not needed as such,” the person said.
 
The meeting comes days after Urjit Patel abruptly resigned as RBI governor amid differences with the government on a range of issues. Das was chosen governor within 24 hours of Patel’s resignation. “The board placed on record its appreciation of the valuable services rendered by Dr Urjit R Patel during his tenure as governor and deputy governor of the bank,” the RBI’s statement said.
 
According to sources, RBI Deputy Governor Viral Acharya, whose speech in October brought to light differences between the government and the RBI, actively participated in the board meeting. “He is here to stay and might as well complete his tenure,” a person said. There were speculations that Acharya also might resign, but it was denied by the RBI earlier this week. “His [Das] approach to work seems that of working as a team with ease in communication. Perhaps he benefits from prior experience of representing government on the RBI board while being DEA secretary,” a board member said.
 
During the last meeting on November 19, one of the longest board meetings of the central bank, in the backdrop of the ‘war of words’ between the RBI and the government, it was decided that the BFS would be responsible for examining the PCA framework. The RBI statement also said that the board discussed the draft report on the ‘Trend and Progress of Banking in India’ for 2017-18. Sources said the expert committee to review RBI’s economic capital framework would be notified in the coming days. The panel will be likely chaired by former RBI governor Bimal Jalan.

 
The Business Standard, 15th December 2018

Comments

Popular posts from this blog

Govt’s gamble on GST cuts: What do the bond and currency markets signal?

  It’s not just humans who suffer from cognitive biases; markets do too. Interestingly, different financial markets exhibit distinct biases, each interpreting events through its own prism of prejudice. Take the recent announcements on GST reforms: equity markets have chosen to view them through the lens of growth, while bond and currency markets are focusing on potential macroeconomic risks—fiscal pressures and current account challenges. So, which lens captures the true pulse?Equity markets may be right in expecting GST reforms to revive consumption, which has remained lacklustre for a while. But the key question remains—will this revival come at the cost of broader macro stability?It is well known that consumption stocks have rallied since the GST rationalisation announcement. But what about bond markets? What signals are they sending since this rejig was announced from the ramparts of the Red Fort?The signs aren't encouraging. Bond prices have slumped and yields have surged sinc...

Luxury carmakers urge clarity on GST rates to boost festive season sales

  A clear picture regarding new GST rates at the earliest will help the overall auto industry, including the luxury car segment, to regain momentum in the ongoing quarter, which generally sees enhanced sales on account of the festive season.The high-powered GST Council, chaired by Finance Minister Nirmala Sitharaman, will meet on September 3-4 to discuss moving to a two-slab taxation.In an interaction with PTI, BMW Group India President and CEO Hardeep Singh Brar said the recent speculation about the change in GST rates has caused uncertainty in the minds of consumers.Consumer interest and demand is strong, but they (prospective buyers) have adopted a wait-and-watch approach, and this delayed decision-making is impacting new vehicle sales at a certain level, he noted."Expediting clarity on GST rates is essential to get back to speed and ensure the auto sector's contribution to economic growth during this quarter is robust," Brar stated.He also hoped that the sustainable p...

Sebi proposes tighter norms for green bond third-party reviewers

  Sebi on Friday said it has proposed to tighten the norms to appoint independent third-party reviewers or certifiers for green debt securities to align them with requirements for other ESG-linked bonds.In a draft circular, Sebi said that the current norms for green bonds, introduced in February 2023, lack detailed requirements around reviewer independence, conflict of interest mitigation, and disclosure standards that are now in place for other ESG-linked securities under a June 2025 circular.The regulator's latest proposal seeks public comments on a revised framework that would bring parity by incorporating comprehensive criteria for third-party certifiers of green bonds on non-convertible securities.Under the proposed norms, issuers of green debt securities will need to appoint reviewers who are independent of their management, directors, and key managerial personnel. These reviewers will be remunerated in a way that prevents any conflicts of interest and possess relevant expert...