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Sparks are set to fly at the Reserve Bank of India board meeting on Monday as the government and the regulator may clash over necessity for a special liquidity window for non-banking finance companies (NBFCs), although the two are likely to step back from the brink on other issues, said three people familiar with the matter.  Worried about NBFCs having frozen lending due to fears of a liquidity crunch, the government is determined to break the logjam that’s causing a credit squeeze for micro, small and medium enterprises (MSMEs), which employ millions, said the people. “Housing sales have almost stalled,” said one of them. “First, bank credit was denied, and now NBFCs have also stopped.” The 18-member board headed by governor Urjit Patel will meet in Mumbai to debate numerous issues, including the current liquidity position, easing of lending norms for banks under the Reserve Bank’s prompt corrective action, and the transfer of excess reserves to the government.  Relations have Det

RBI and government representatives are therefore likely to make presentations on some of these issues, highlighting the impact of these changes on the banking sector,” said one of the board members on condition of anonymity.  RBI’s central board currently has 18 members, including five full-time directors from the central bank. It has two government representatives, which include secretaries from the departments of economic affairs and financial services.  Lending hope to the idea of a deal are the comments made last week by Rashtriya Swayamsevak Sangh ideologue and RBI central board director S. Gurumurthy. “As my understanding goes, the government is only asking for a formulation of a policy as to how much reserve the central bank must have. Most central banks don’t have reserves of this kind at all, only RBI has these kinds of reserves,” he said on 15 November in an address at the Vivekananda International Foundation.  However, another person familiar with the developments in RBI

The Reserve Bank of India board meeting on November 19 may decide to set up a high-level committee to decide on its capital framework, among the key reasons for the conflict between the regulator and the Centre, said several people familiar with the matter, downplaying expectations of a showdown.  The possibility of the board giving any direction with regard to the actual transfer of RBI reserves to the government looks remote as the RBI Act does not permit this, they said. “The board can lay down rules but cannot decide on a case-to-case basis,” said former financial services secretary DK Mittal, adding that the rules regarding the quantum of reserves to be held had been decided by the board. “The board has to take a balanced stand now. Both the government and RBI should behave responsibly.” Mittal was a member of the board by virtue of his position. The reserves are meant for unforeseen contingencies, including depreciation in the value of securities, risks arising from exchang

The Securities and Exchange Board of India (Sebi) is considering a proposal to tighten rules for liquid mutual funds holding assets worth ?8 lakh crore or more to curb volatility in flows following the challenges facing finance companies in the wake of the debt default by Infrastructure Leasing & Financial Services (IL&FS).  The capital market regulator is planning a short lock-in period for investments in liquid funds, in which investors — mostly large companies — park idle cash. Sebi may also make it mandatory for liquid funds to mark to market the value of more bonds and allow segregation of debt instruments in mutual fund portfolios that are in trouble, said three people aware of the development. These measures are likely to be discussed at the Sebi-appointed mutual fund advisory committee meeting on Monday.  A lock-in period, aimed at reducing volatility in flows, could reduce the popularity of the product among institutional investors, experts said.  Most banks churn

More than eight years after successfully launching the Aadhaar project, India’s unique identity authority (UIDAI) is looking at effecting a major “operational shift” from enrolment to large-scale data updates in order to ensure the long-term success of the scheme, according to an official note by the authority.  Set up in 2009 through a government notification, UIDAI has been generating the 12-digit unique identity number, called Aadhaar, since 2010.  As on September 30, more than 1.12 billion Aadhaar numbers have been generated. As per UIDAI data, Delhi, Haryana, Himachal Pradesh, Goa, Kerala, Punjab, Chandigarh and Telangana have more than 100% saturation till October 31, while Sikkim has the lowest saturation at 87%. Hundred per cent saturation means the entire population of a city has been covered in terms of Aadhaar enrolment. It exceeds 100% when there is a migrant population availing of the service. “In these states, UIDAI needs to undertake an operational shift from enrolme

The government sought to define the nature of its relationship with the Reserve Bank of India — currently at a low ebb — by declaring that it respected the regulator’s autonomy but that this independence was subject to provisions of the RBI Act. This meant that it will continue to raise issues of public interest and the economy with the central bank, the government insisted.  The statement came on the day ET reported that the government had invoked powers never used before under the RBI Act to issue directions to the central bank. The press release helped calm the market but didn’t appear to suggest a de-escalation in hostilities between the government and the central bank. “The autonomy for the central bank, within the framework of the RBI Act, is an essential and accepted governance requirement,” the government said, amid speculation about governor Urjit Patel resigning. “Governments in India have nurtured and respected this.”  The government and RBI have to be guided by “public

Section 7 (1) of the Reserve Bank of India Act became a contentious issue after the tension between the central bank and government turned into a public spat over the last few days. No government has so far invoked this section in the central bank’s 83-year history.  According to Section 7 (1), “the central government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest.” The issue of invoking Section 7 (1) came up during the hearing of Allahabad high court in a case filed by the Independent Power Producers Association of India challenging RBI’s 12 February circular. The high court, in August, said the government could issue directions to RBI under Section 7 of RBI Act.  Against this backdrop, the government issued a letter to the RBI governor seeking his views on exemption for power companies in relation to the 12 February circular. The second instance was when the government o