Amid the ongoing ball game between the Reserve Bank of India (RBI) and the Centre, the central bank governor, Urjit Patel, last week met Prime Minister Narendra Modi in a bid to work out several controversial issues that came to light over the last couple of weeks, according to reports.
Speculations have been rife that Patel on Friday, November 9, 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.
There are also reports that the RBI may create a special dispensation for lending to small and medium enterprises, but it was not immediately clear if an agreement has been worked out to ease liquidity situation for non-banking finance companies (NBFCs) and the RBI parting with its substantial part of its surplus.
The development came days ahead of the RBI's crucial board meeting on November 19 during which contentious issues are likely to be taken up for discussions. The factors which are going to be raised include 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.
The RBI and the government have been at loggerheads ever since the Finance Ministry initiated talks regarding the never-used-before Section 7 of the RBI Act, which empowers the government to issue directions to the RBI Governor.
RBI Deputy Governor Viral Acharya, however, in October pitched for the independence of the central bank, adding that any compromise could be "potentially catastrophic" for the economy.
Meanwhile, 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".
Economic capital framework refers to the risk capital required by the central bank while taking into account different risks. The Reserve Bank of India (RBI) has a massive Rs 9.59 lakh crore reserves.