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RBI Board meeting: Key decisions

Tensions between the Reserve Bank of India and the government seemed to have some what eased.

The RBI appeared to have backed down on several issues such loan restructuring for small businesses, easier norms for weak banks, and pumping of more cash into the system.

The decisions came at a board meeting.

Nov 20, 2018 11:05 IST
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The Reserve Bank of India (RBI) on November 19, 2018 held a marathon board meeting and discussed over several contentious issues including how much capital the RBI needs, lending norms for small and medium enterprises (SMEs) and rules for weak banks.

The board meeting yielded a mutual agreement between the RBI and the government, where RBI agreed to refer the contentious issue of appropriate size of reserves that the RBI must hold to an expert committee, while restructuring of stressed loans of small businesses would be considered by the central bank.

According to the RBI statement, the board discussed the some of the key issues like

• Basel regulatory capital framework,
• bank health under Prompt Corrective Action (PCA) framework,
• a restructuring scheme for stressed MSMEs,
• and the Economic Capital Framework (ECF) of RBI.

What are the key decisions takes at RBI Board meet?

 

What did the government want from RBI? What the RBI has decided?
Aligning capital norms of banks to internationally established BASEL norms: It means to retain the capital to risk-weighted assets ratio (CRAR) also called the capital adequacy ratio (CAR) at 9 percent No change in BASEL norms, deadline pushed back by a year for the last tranche. Which means RBI board agreed to extend the transition period for implementing the last tranche of 0.625 percent under the Capital Conservation Buffer (CCB), by one year, i.e., up to March 31, 2020.
Easier credit for MSME
Restructuring of stressed standard assets of MSME borrowers with aggregate credit facilities of up to Rs 25 crore, subject to conditions of ensuring financial stability
Relaxation of Prompt Corrective Actions (PCA) framework on 11 PSBs Prompt Corrective Actions (PCA) framework on banks will be examined by RBI's Board for Financial Supervision.
Transfer of part of RBI's reserves
A committee to be set up to examine the economic capital framework of RBI

 

 

Some undecided issue:


•Special liquidity window for NBFCs
•Fixing issue of governance in RBI

What will be the impacts of these decisions?

1. Loan restructuring for MSME: This will be available up to March 2020, which will help the government tide over fund shortage in  the economy.

2. Panel to examine Economic Capital Framework: The membership and terms of reference of the panel will be jointly determined by the Government of India and the RBI. It means the government will have its say in RBI panel. For now, the government will not be able to tap into the RBI kitty, it may get a larger share of surplus in future if the panel recommends so.

3. RBI acceptance of Board advice: Now, the RBI becomes board driven entity instead of top officials taking the calls.

What is RBI Board meeting?

The RBI Board of Directors meets every month to discuss the matter related to banks and systemically important financial entities and other routine issues of supervision. In the meeting, the RBI Board members (now it has 18 members, inclusive of the Governor and four Deputy Governors and two top bureaucrats from the Finance Ministry) participate.

The center also nominates 10 public representatives from different fields of activity to the board. Some of the well-known names nominated by the government to the Board now are N. Chandrasekaran, chairman, Tata Sons, agricultural economist Ashok Gulati, chartered accountant S. Gurumurthy, Rajiv Kumar, Secretary, Department of Financial Services among others.

The Reserve Bank of India (RBI) on November 19, 2018 held a marathon board meeting and discussed over several contentious issues including how much capital the RBI needs, lending norms for small and medium enterprises (SMEs) and rules for weak banks.

The board meeting yielded a mutual agreement between the RBI and the government, where RBI agreed to refer the contentious issue of appropriate size of reserves that the RBI must hold to an expert committee, while restructuring of stressed loans of small businesses would be considered by the central bank.

According to the RBI statement, the board discussed the some of the key issues like

·         Basel regulatory capital framework,

·         bank health under Prompt Corrective Action (PCA) framework,

·         a restructuring scheme for stressed MSMEs,

·         and the Economic Capital Framework (ECF) of RBI.

What are the key decisions takes at RBI Board meet?

What did the government want from RBI?

What the RBI has decided?

Aligning capital norms of banks to internationally established BASEL norms: It means to retain the capital to risk-weighted assets ratio (CRAR) also called the capital adequacy ratio (CAR) at 9 percent

No change in BASEL norms, deadline pushed back by a year for the last tranche. Which means RBI board agreed to extend the transition period for implementing the last tranche of 0.625 percent under the Capital Conservation Buffer (CCB), by one year, i.e., up to March 31, 2020.

Easier credit for MSME

Restructuring of stressed standard assets of MSME borrowers with aggregate credit facilities of up to Rs 25 crore, subject to conditions of ensuring financial stability

Relaxation of Prompt Corrective Actions (PCA) framework on 11 PSBs

 Prompt Corrective Actions (PCA) framework on banks will be examined by RBI's Board for Financial Supervision.

Transfer of part of RBI's reserves

A committee to be set up to examine the economic capital framework of RBI

 

Some undecided issue:

·         Special liquidity window for NBFCs

·         Fixing issue of governance in RBI

What will be the impacts of these decisions?

1.       Loan restructuring for MSME: This will be available up to March 2020, which will help the government tide over fund shortage in  the economy.

2.       Panel to examine Economic Capital Framework: The membership and terms of reference of the panel will be jointly determined by the Government of India and the RBI. It means the government will have its say in RBI panel. For now, the government will not be able to tap into the RBI kitty, it may get a larger share of surplus in future if the panel recommends so.

3.       RBI acceptance of Board advice: Now, the RBI becomes board driven entity instead of top officials taking the calls.

What is RBI Board meeting?

 

The RBI Board of Directors meets every month to discuss the matter related to banks and systemically important financial entities and other routine issues of supervision. In the meeting, the RBI Board members (now it has 18 members, inclusive of the Governor and four Deputy Governors and two top bureaucrats from the Finance Ministry) participate.

 

The center also nominates 10 public representatives from different fields of activity to the board. Some of the well-known names nominated by the government to the Board now are N. Chandrasekaran, chairman, Tata Sons, agricultural economist Ashok Gulati, chartered accountant S. Gurumurthy, Rajiv Kumar, Secretary, Department of Financial Services among others.

 

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