Minutes before meet, ministers attack RBI’s decisions

In an indication that the RBI may come under pressure to give in to the Centre’s demands to free up bank credit, a key minister in Prime Minister Narendra Modi’s cabinet has sought to know what prompted the central bank to change the lending norms that halted credit to businesses, minutes before the crucial RBI Board meeting in the day.

Minister of Railways and Coal Piyush Goyal, in a series of tweets, has attacked RBI’s autonomy and inadequate handling of its capital reserves. He said the government has every right to ask the regulator questions on issues of national importance.

“Would you not want the Government to at least ask questions of the revised PCA framework – what promoted you to change the rules halfway into a game? Did you discuss it with anybody, is it comparable to international norms?

“Without any reference to the board of directors, suddenly on 1st April 2017, RBI drastically changed the Prompt Corrective Action framework. This is not there anywhere in the world. It was like changing the rules of the game midway into the match. This has not been debated enough,” Goyal said in his tweets.

He is the second cabinet minister to attack the central bank in a day. Finance Minister Arun Jaitley too on Thursday had said that as a sovereign government and most important manager of the country, the regime at the Centre had the right to ask RBI certain questions and air its views even if they were contradictory to that of RBI.

However, Goyal attack on RBI’s PCA framework and his allegation that suddenly the central bank had changed the rules midway through does not appear in tandem with the developments that took place in the run-up to imposition of PCA on 11 weak public sector banks.

The RBI had written at least three letters to the Ministry of Finance on the issue and in one reply in April, the ministry had agreed on a broader support to the cause. Subsequently, Jaitley and other top officials of RBI had also supported the move until faced an extreme opposition from businesses, especially power sector companies, MSMEs and real estate firms.

On capital reserves of the central bank, which the government wants to spend ahead of parliamentary elections next year, Goyal said, “there was never any intention that RBI’s capital should be transferred to government. But their capital reserves are amongst the highest and are not being put to good use. It could possibly have been used to support the Banks just as was done in USA during the financial crisis,” the minister said.