Glad govt acknowledged independence of RBI: Chidambaram

Hope Urjit Patel and His Team Have a Spine to show Mr Modi his place Rahul Gandhi tweets

The Congress has accused the Modi government of destroying every institution in the country and the latest one being the Reserve Bank of India.

Sources indicate there were detailed presentation by RBI on the issue of economic capital as well as other issues like prompt corrective action framework.

The Government and the Reserve Bank of India on Monday pulled back from the brink after a public spat over the last few weeks with the central bank and the board reaching an agreement on providing relief to small and medium firms and easing lending restrictions on some state-owned banks.

The Reserve Bank of India will form a panel to study the transfer of its surplus reserves to the government, Sachin Chaturvedi, one of the members of the 18-member board, said in an interview to Bloomberg News.

The government's other suggestion to transfer excess reserves to the Centre, however, is likely to be decided by an expert committee to be set up by RBI.

The most contentious issue that the central bank and finance ministry locked horn was the issue of RBI's capital. "There was a big discussion on the past reserves of the RBI". The meeting is taking place as the government has sought a discussion on governance in the central bank and appropriate capital framework. "On extension of the timeline for the capital conservation buffer, I think it is better to defer it because that gives a lot more capital to the bank since we were anyway compliant with Basel", Abizer Diwanji, Partner, EY, told BloombergQuint. Sources said that the BFS is expected to release some of the banks from the PCA framework in the wake of improvement in their operations. The BFS is expected to discuss the PCA issue in its December 6 meeting. However, the central bank has been averse to the government's demand as it considers the sectors to be vulnerable.

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RBI, which had taken a stern stance, is likely to relax the PCA norms only on those banks that are showing signs of a turnaround through faster resolution of non-performing assets (NPAs) and shedding of non-core assets. The government had interpreted the RBI's April 2017 revised framework in a way that banks need to register at least two years of profit to come out of PCA, sources said.

"The Board also advised that the RBI should consider a scheme for restructuring of stressed standard assets of MSME borrowers with aggregate credit facilities of up to ₹250 million [₹25 crore], subject to such conditions as are necessary for ensuring financial stability", RBI said. "There is no proposal to ask RBI to transfer Rs 3.6 or 1 lakh crore, as speculated", Economic Affairs Secretary Subhash Chandra Garg tweeted.

The RBI was not convinced about a special refinance window for NBFCs, as it has been maintaining it in the past. It may also be open to injecting liquidity through open market purchases of bonds but is resisting relaxing capital buffers for banks.

The RBI Board meeting has been going on for over seven hours now. "Everyone wanted to find a solution instead of public bickering", the person said.

In the run-up to the board meeting, former Finance Minister P Chidambaram said Patel should step down if the board were to issue any direction to it on parting of capital reserves or relaxation of norms.

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