New Delhi: In a fresh push to get the RBI to relax norms for prompt corrective action (PCA), the government is likely to cite an assessment by Basel Committee on Banking Supervision that states Indian norms were more stringent than those suggested by the panel, a government source said on Tuesday. “Internationally, the norms for corrective action are far more relaxed than in India,” the source said.
Currently, 11 public sector banks are under the central bank’s prompt corrective action framework due to a sharp increase in their non-performing assets. The framework entails strict limit on their operations, which the government has claimed is hitting credit growth. As per the RBI’s guidelines, one of the criteria which triggers prompt corrective action for banks is an increase in their net NPA ratio above 6 per cent.
“But many developed countries, such as the US and those from the European Union, don’t use NPA ratios to enforce corrective action on banks,” the source said. RBI has faced pressure to relax its prompt corrective action norms, with a senior finance ministry official on Monday saying that the guidelines were likely to be discussed at the RBI’s central board of directors meeting on November 19.
SC declines urgent hearing
Meanwhile, the Supreme Court on Tuesday refused to accord urgent hearing on a petition alleging interference by the Centre in the functioning of the RBI. A bench comprising Chief Justice Ranjan Gogoi and Justices S K Kaul and K M Joseph said the issue mentioned in the petition did not require an urgent hearing and it will come in “due course”. “We will see to it,” the bench said when lawyer M L Sharma, who has filed the PIL in personal capacity, sought the urgent hearing.
The PIL sought the court should declare that the Centre has no “legal right” to issue any direction to the federal bank. Financial Services Secretary Rajiv Kumar had said that while the government was not seeking a relaxation in the PCA framework, they had to be aligned with international best practices. “Let’s be very clear about this… there is no case for easing of any norm… What is required is aligning it with best international practices. Take it from the best, align it to it, and don’t keep it higher than that,” he said.
RBI to inject Rs 12,000-crore liquidity
The RBI announced it will inject Rs 12,000 crore into the system through purchase of government securities on November 15. “Based on an assessment of prevailing liquidity conditions and also of the durable liquidity needs going forward, the RBI has decided to conduct purchase of the following government securities under Open Market Operations for an aggregate amount of Rs 120 billion on November 15, 2018,” it said. The OMO operation will help ease tight liquidity situation triggered by series of default by companies of IL&FS.
