RBI board agrees to set up panel to examine Economic Capital Framework


The crucial meeting of Reserve Bank of India's board has come to an end after nine hours of discussion. The meeting was held on Monday amid a rift between the central bank and the government over key issues.

According to the press release by the RBI, the Board decided to constitute an expert committee to examine the Economic Capital Framework (ECF) on transfer of RBI's surplus reserves to the government. The membership and terms of reference of the panel will be jointly determined by the Government of India and the RBI, the statement said.

“The meeting happened in a very cordial environment. Most of the issues were resolved in an amicable manner,” Reuters cited an unidentified board member, who attended the meeting.

“A panel will be formed to work out a framework to determine the reserves requirements of the RBI and transfer surplus funds to the government,” the board member told Reuters.

Alongside the issue of tranfer surplus funds, the board also discussed the Basel regulatory capital framework, a restructuring scheme for stressed MSMEs and bank health under Prompt Corrective Action (PCA) framework.

The RBI agreed to consider a scheme for restructuring of stressed standard assets of MSME borrowers with aggregate credit facilities of up to Rs 250 million.

The board has agreed to extend the transition period for implementing the last tranche of 0.625 per cent under the Capital Conservation Buffer (CCB), by one year, i.e., up to March 31, 2020, while deciding to retain the Capital to Risk Assets Ratio (CRAR) at 9 per cent.

Regarding the issue of easing of PCA norms, the board has decided that the matter will be examined by the Board for Financial Supervision (BFS) of RBI.

A litany of demands from top finance ministry officials to ease lending and capital rules for banks, provide more liquidity to the shadow banking sector, support lending to small businesses and to let the government use more of the RBI's surplus reserves have put immense pressure over the RBI.

The demands prompted warnings from RBI Deputy Governor Viral Acharya last month that undermining central bank independence could be “catastrophic,” triggering a public feud between the bank and the government.