Page 49 - 15DEC2018E

BANKING

RBI and Centre the Department of Economic Affairs,

through a tweet set all speculations to
manage to reach rest. He tweeted: “A lot of misinformed
speculation is going around in media.
The government’s fiscal math is com-
pletely on track. There is no proposal to
‘temporary truce’ ask RBI to transfer 3.6 or 1 lakh crore, as
speculated.” Confident of meeting fiscal
deficit target, the government on No-
vember 9 clarified it is not seeking trans-
fer of 3.6 lakh crore reserves from the
Ever since the Union Finance Minister, Arun Jaitley, accused the RBI and the only proposal under discus-
RBI of its failure to check the indiscriminate lending by the public sion is to fix appropriate economic capi-
tal framework of the central bank.
sector banks during 2008 and 2014, and Dr Viral V Acharya, On the fiscal road map, he said the
Deputy Governor of RBI, joined the war of words, the RBI and the government will stick to the fiscal defi-
government have always appeared to be on a collision course. cit target of 3.3 per cent for the current
financial year. “Government’s FD (fis-
However, the meeting held on November 19 signalled for a cal deficit) in FY 2013-14 was 5.1per cent.
temporary truce between the two, writes SUMAN From 2014-15 onwards, Government has
succeeded in bringing it down substan-
tially. We will end the FY 2018-19 with FD
he Union Finance Minis - ing a signal that all was well between of 3.3 per cent. Government has actually
ter, Arun Jaitley, at an event the RBI and the Government. The sen- foregone 70,000 crore of budgeted mar-
organised by the US-India timent was such that the Indian rupee ket borrowing this year,” he said. Garg
Strategic and Partnership rose and bonds gained. It is learnt that further said the only proposal “under
T Forum had went on to com- the Reserve Bank of India will now set discussion is to fix appropriate economic
ment, “The central bank looked the oth- up an expert committee comprising capital framework of RBI”. The clarifica-
er way as the bank credit growth in one members appointed jointly with the tion came amidst report that the gov-
of these years was 31per cent, against Union Government. The committee ernment is seeking transfer of at least a
the normal trend of 14per cent. I do not will look into the “excess” capital sup- bear any losses that arise from central Secretary Rajiv Kumar and independent • Surplus row A high-powered panel will third of Reserve Bank’s 9.6 lakh crore
know what the central bank was do- posed to be held by the central bank. bank operations and having appropri- member S Gurumurthy. The next meet- examine issues related to RBI’s surplus capital reserves. Besides, it has also been pointed
ing. It was a regulator. They kept push- The RBI board has decided to set up a ate rules to allocate profits (including ing is going to be held when the election out that the government wants the RBI
ing truth below the carpet.” Similarly, high-powered committee to examine rules that govern the accumulation process in few state assemblies would to part with most of its profit as dividend.
Dr. Viral V Acharya, Deputy Governor issues related to surplus capital of of capital and reserves) is considered be over. However, some sort of truce, The government The government’s demand is expected to
of RBI during his AD Shroff Lecture in 9.69 lakh crore with the central bank an important part of central bank’s though temporary, had come out as the claims that the RBI further fuel tensions with the RBI, which
Mumbai on October 26, 2018, had com- and advised it to consider a scheme for independence from the government. meeting ended on a conciliatory note has been pushing back any moves that
mented, “Using central bank reserves restructuring stressed assets in the A final issue is one of regulatory scope, with the central bank agreeing to set up holds 3,60,000 crore curtail the central bank’s independence.
to pay government obligations is not a MSME sector. The nine-hour long meet- the most recent case in point being a panel on sharing surplus reserves and by way of excess
positive development and the concept ing of the board, also decided that the the recommendation to bypass the restructure loans of small businesses up Lull before storm
of excess reserves is certainly open to Board for Financial Supervision (BFS) central bank’s powers over payment to 25 crore and the RBI would pump in capital which should But to think that differences between
debate. It weakens the balance sheet would examine the issues concerning and settlement systems by appoint- 8,000 crore into the system. be transferred to it. the RBI and the government have eased
of the central bank.” The deputy gover- the banks that are under the Prompt ing a separate payments regulator. The out would not be a correct assessment
nor has made it clear in his statement Corrective Action framework. Reserve Bank has published its note of Invoking Section 7 However, RBI officials because when committees are formed,
where said, “As many parts of the world dissent against this recommendation There were apprehensions that the have been defending it only means buying time and lingering
today await greater government re- Defending RBI on October 19, 2018. government would invoke Section 7 of the issues. It is not a solution. With this
spect for central bank independence. The government claims that the RBI the Reserve Bank of India Act to ask the the need for the all eyes would be on December 14, 2018
The Governments that do not respect holds 3,60,000 crore by way of excess Next RBI meeting on Dec 14 central bank to hand over a part of its which would show if the ongoing differ-
central bank independence will soon- capital which should be transferred to The next meeting of the board is likely surplus reserves to put that to more pro- bank to hold a strong ences between the Reserve Bank of India
er or later incur the wrath of financial it. But RBI officials, including Gover- to be held on December 14. At the mar- ductive use. The government’s viewpoint balance sheet to and the Government ease out or lead to
markets, ignite economic fire, and come nor Urjit Patel, have been defending athon meeting of the RBI board, RBI seems that most central banks around further confrontation. In the meanwhile,
to rue the day they undermined an im- the need for the bank to hold a strong Governor Urjit Patel came face to face the world keep 13 per cent to 14 per cent enable the country we can say that it is a lull before a storm
portant regulatory institution.” balance sheet to enable the country with government nominee directors of their assets as reserve, compared with withstand financial which seems imminent in near future.
The meeting of RBI Board on No- withstand financial crises and external — Economic Affairs Secretary Subhash the Reserve Bank’s 27 per cent. Howev-
vember 19 went on for nine hours send- shocks. Having adequate reserves to Chandra Garg and Financial Services er, Subhash Chandra Garg, Secretary of crises LETTERS@TEHELKA.COM

TEHELKA / 15 DECEMBER 2018 48 WWW.TEHELKA.COM TEHELKA / 15 DECEMBER 2018 49 WWW.TEHELKA.COM

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