Mumbai: The much-awaited meeting of the board of the Reserve Bank of India ended on Monday evening on a note of cautious optimism with the central bank agreeing to set up committees to examine some of the issues that have been flagged by the government in recent times.
One of these committees will examine the contentious issue of appropriate size of reserves that the RBI must hold. With regard to the issue of Prompt Corrective Action, it was decided that the matter will be examined by the Board for Financial Supervision of the RBI. Also, a scheme for restructuring of stressed assets in the MSME sector will get much-needed attention.
To that extent, sources said, Governor Urjit Patel has indeed blinked, after keeping the government engaged eyeball-to-eyeball almost for a month. But if one looks at the big picture, the setting up of the committees seems to suggest that both sides have stuck to their respective positions and agreed to defer a decision on contentious issues in the run-up to the Assembly elections. Until then, the committees will help hold the façade of an ‘uneasy truce.’
According to sources, no voting on any proposal took place and a detailed presentation was made by Deputy Governor N S Vishwanathan to the board. The biggest take away for the government was the RBI agreeing to ease liquidity for the financial sector and increasing credit flow to small businesses. The move is in response to pressure from PM Modi’s government which faces a general election by next May and is concerned that low farm prices and difficulties small businesses face in borrowing, may hurt its prospects with voters.
According to one media report, RBI has specifically agreed to restructuring of loans of small businesses up to Rs.25 crore; besides, it would inject additional liquidity of Rs 8,000 crore into the system through open market operations. The meeting, which lasted more than nine hours, largely ended on a conciliatory note with the contentious issues being kicked down the road to be discussed by newly formed committees. Lingering issues, which need immediate attention, will be taken up in the December 14 meeting of the central bank’s board.However, the board has to meet again on Tuesday, which could see a very different outcome.
