Liquidity and governance to dominate RBI Board meet

Against the backdrop of a better than expected bad loan recovery and an upward looking macro economic numbers, the first RBI Board meeting under Governor Shaktikanta Das on Friday is likely to push for an enhanced credit flow to industry.

Governance reforms in the central bank and its capital framework are the other key issues on which the RBI and government are expected to walk some distance.

“The focus is going to be on the liquidity concerns,” a senior banking official told DH.

Markets have been reeling under constant liquidity crunch after the IL&FS loan default of over Rs 90,000 crore, though there was some semblance of ease in the week to December 3, with the banks witnessing a surplus of a little over Rs 4,000 crore.

In his first media address on Wednesday, Das had underlined industry concern over tight liquidity and said he would try to look into it.

The RBI Governor, who held his first meeting with public sector lenders on Thursday, was bombarded with requests to look into the squeeze in credit flow to MSMEs and also relax PCA norms on some of the state-owned lenders for smooth credit flow.

Heads of State Bank of India, PNB, Union Bank, Central Bank of India, Bank of India and Dena Bank attended the meeting.

The RBI board, which is meeting after a surprised exit of Urjit Patel at the helm, will be faced with the two most contentious issues of governance and capital sharing. The Centre wants to turn RBI Board from an advisory body to a supervisory one.

The government nominees on the board – S Gurumurthy and Economic Affairs Secretary Subhash Chandra Garg are likely to push for an enhanced sharing of central bank reserves with the government which can be put to more “productive use”.

During his tenure at the Ministry of Finance, Das was a strong supporter of the government getting a larger pie from close to Rs 9.50 lakh crore of capital reserve that the central bank is sitting on.

However, his deputy at the Mint Street office, Viral Acharya, who had recently stirred a debate on RBI's autonomy versus governments' control, is also against sharing of more reserves with the government.