RBI Board meeting underway as central bank looks to resolve conflict with government

Amid the ongoing rift with the central government and rumours of its Governor Urjit Patel’s resignation, the Reserve Bank of India (RBI) will hold a crucial board meeting on Monday. Several issues, including the government’s proposed changes to the RBI Act, 1934, alignment of capital adequacy norms with those in advanced countries and some relaxation in the Prompt Corrective Action framework, are likely to be taken up for discussions during the meeting. According to sources, the central bank could agree to tweak certain restrictions on lending to improve credit flows for smaller companies with a borrowing limit of Rs 34 lakh.

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The RBI has been at loggerheads with the Centre over Finance Ministry’s use of Section 7 of the RBI Act, which grants special powers to the government to issue directions to the central bank.

On Saturday, Finance Minister Arun Jaitley had said that limiting credit availability and liquidity must not affect the growth of the country.

“If we have to improve on this (growth), we need a certain level of credit flow as far as entrepreneurs are concerned... see that liquidity is maintained,” the finance minister said during an award ceremony in Mumbai.

Earlier on November 9, RBI governor Urjit Patel had met senior officials in the Prime Minister’s Office (PMO), including Modi in New Delhi and discussed several ongoing factors ranging from the appropriate size of reserves that RBI must maintain to ease of lending norms to step up growth in an election year.

The meeting also comes nearly a week after the Economic Affairs Ministry had last week rejected the reports of the Centre’s proposal to the RBI seeking transfer of Rs 3.6 lakh crore and said the only plan “under discussion is to fix appropriate economic capital framework of RBI”.

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The Economic capital framework refers to the capital required by the central bank while taking into account different risks. The RBI has massive reserves of worth Rs 9.59 lakh crore.