Amid the tension between Central Bank of India (RBI) and Central Government, two chief of the two organisations met on Monday at Delhi to discuss on the development.
Sources said that RBI Governor Urjit Patel met Prime Minister Narendra Modi to iron out differences between the central bank and the government, in a sign that there could be a thawing of relations after the unprecedented rift.
Sources informed that the two sides agreed to a compromise formula—the Centre would soften its stand on seeking surplus reserves of the RBI, and the central bank would cede to the demand of relaxing some of its lending curbs—during the meeting. As part of the understanding, the Reserve Bank of India is likely to let some banks out of its Prompt Corrective Action (PCA) framework, allowing them to lend more, sources said.
The curbs were imposed because the banks had a low capital base and major bad debt problem, which barred from lending unless they reduced their bad debt levels, improved their capital ratios and became profitable.
The government and the RBI, sources said, have agreed to merge some of the banks on the list, to take them out of the PCA radar and have also settled on a special dispensation to ensure that credit for small and medium businesses does not suffer as a result of the RBI’s crackdown on non-performing assets. The government, however, argued that the restrictions went too far and reduced the availability of loans for small and medium sized businesses.
The centre, on its end, has decided not to push hard for the surplus reserves of the central bank to help fund its fiscal deficit, sources added.The government had two days ago denied seeking the money, but accepted that it wanted the RBI to fix “appropriate” economic capital framework.
Sources said the Narendra Modi government will also not ask the RBI for a special window for Non-Banking Financial Companies (NBFCs).
The RBI currently hands over its profits earned from various activities in the form of a dividend. But reports stated the government had also wanted to tap Rs 3.6 lakh crore of RBI’s capital reserves. The RBI consistently pushed back against the demand, and said the move had several pitfalls.