6 years ago
New Delhi/Mumbai:
The meeting of the board of the Reserve Bank of India has ended after over nine hours, amid what analysts say an atmosphere of mistrust over perceived government interference in the central bank's functioning. RBI agreed to set up a panel for sharing surplus and also to restructure loans of small businesses. Congress president Rahul Gandhi tweeted: "Mr Modi and his coterie of cronies, continue to destroy every institution they can get their hands on. Today, through his puppets at the #RBIBoardMeet he will attempt to destroy the RBI. I hope Mr Patel and his team have a spine and show him his place."
Though the government has maintained it has no intention of forcing the RBI's hand to do its bidding, the opposition has alleged the NDA regime intends to plough into the precious reserves of the central bank in election season. With a heightened sense of alertness, the markets and investors are also closely watching the development.
Any sign that all's not well in the RBI could mean trouble for the markets, analysts say. The first sign of trouble came in October when reports alluded to the government's interest in Section 7 of the Reserve Bank of India Act or RBI Act, which empowers the centre to issue directions to the "lender of last resort" -- meaning the government could take charge of policy. Last year, former RBI Governor D Subbarao said Section 7 has never been used in more than 80 years of the central bank's history.
Here are the highlights of the RBI board meeting and the markets:
Glad that the Government has stepped back and grudgingly acknowledged the independence of the RBI.
- P. Chidambaram (@PChidambaram_IN) November 19, 2018
RBI's full statement after today's board meet:
The Reserve Bank of India's (RBI) Central Board met today in Mumbai and discussed the Basel regulatory capital framework, a restructuring scheme for stressed MSMEs, bank health under Prompt Corrective Action (PCA) framework and the Economic Capital Framework (ECF) of RBI. The Board decided to constitute an expert committee to examine the ECF, the membership and terms of reference of which will be jointly determined by the Government of India and the RBI.
The Board also advised that the RBI should consider a scheme for restructuring of stressed standard assets of MSME borrowers with aggregate credit facilities of up to ₹ 250 million, subject to such conditions as are necessary for ensuring financial stability. The Board, while deciding to retain the CRAR at 9%, agreed to extend the transition period for implementing the last tranche of 0.625% under the Capital Conservation Buffer (CCB), by one year, i.e., up to March 31, 2020. With regard to banks under PCA, it was decided that the matter will be examined by the Board for Financial Supervision (BFS) of RBI.
What RBI and the government agreed on after the meet: Sources
RBI will form a panel on sharing surplus
Loans of up to Rs 25 crores to be restructured
Issue of RBI governance, liquidity saved for another meeting on December 14th
Sudhir Mankad, one of the board members, was seen leaving the RBI building in Mumbai.
In October, the RBI had pumped around Rs 36,000 crore into the market. RBI has been saying there is enough liquidity in the market.
Indian Rupee Vs US Dollar Today INR Vs USD Currency Exchange Rate November 19 RBI Board Meeting 10 Things To KnowHalting its four-day winning streak, the rupee slipped by 9 paise to 72.02 against the US dollar in early trade on Monday ahead of the outcome of Reserve Bank of India (RBI) board meeting, reported news agency Press Trust of India (PTI).
Investors were on guard against any resurrection of the row between the central bank and government officials, but few were expecting fireworks as both sides have tried to dispel fears of a more serious falling out.
That has left traders still anxious to see how far the RBI might be ready to compromise to meet the government's demands.
"Foreign investors will wait to get some cues from today's meeting on the extent to which the central bank is autonomous, but it will be good for bond markets in the short-term if the RBI gives in to the government's demand for more liquidity," a dealer at a foreign bank said.
(News agency Reuters)
Economics Affairs Secretary SC Garg was expected to make a presentation in the board meeting to outline the concerns of the finance ministry and could bring up the question about the transfer of surplus cash reserves held by the RBI, Reuters reported quoting unnamed sources.
For weeks, government officials have been pressuring the RBI to accede to a range of demands, prompting RBI Deputy Governor Viral Acharya to warn late last month that undermining a central bank's independence could be "catastrophic," bringing the feud into the open.
S Gurumurthy has been a vocal member on the RBI board asking for easier lending and capital restrictions for banks and more cash for small businesses, a view that is supported by top finance ministry officials and has deepened an ongoing rift between the government and the central bank.
Realty and metal stocks gained, with Nifty realty index and Nifty metal index up 1.8 and 1.3 percent, respectively, Reuters reported. Hindalco Industries Ltd and Vedanta Ltd rose as much as 3.2 and 2.9 per cent, while Oberoi Realty shares gained up to 6 per cent.
Yes Bank Ltd was the top percentage gainer on the Nifty, with shares rising as much as 7.1 per cent, in their biggest daily gain in nearly three weeks. Among the gainers, Tata Investment Corp's stock jumped 7.9 per cent to its highest level since June 20 after the company approved a share buyback proposal, Reuters reported.
Jet Airways India Ltd's stock plunged 12.5 per cent, posting its biggest daily fall since August 10, after Tata Sons Ltd said on Friday it is only in preliminary talks with the struggling carrier but has not made a proposal to acquire a stake.
Shares pared most of their early gains to trade marginally higher today, as the Reserve Bank of India held a board meet to discuss several issues related to liquidity, lending rules for banks and handing over surplus reserves to the government.
The major thing to look out from the (RBI) meeting is if they come out with any respite for non-banking financial companies' liquidity situation, said Saurabh Jain, assistant vice-president-research at SMC Global Securities, Reuters reported.
The 10-year benchmark bond yield was at 7.81 per cent compared with 7.82 at Friday's close, while the rupee was at 71.89 per dollar versus 71.92 on Friday. The broader NSE stock index was little changed at 0.3 per cent.
Investors are on guard against any escalation of the row between the RBI and government officials, but few are expecting fireworks as both sides have tried to dispel fears of a more serious falling out. That has left traders still anxious to see how far the Reserve Bank of India led by Governor Urjit Patel might be ready to compromise to meet the government's demands.
The government on November 9 had said it was discussing an "appropriate" size of capital reserves that the central bank must maintain, but denied seeking a massive capital transfer from the Reserve Bank of India led by Governor Urjit Patel.
Today's RBI board meeting is likely to be a marathon one. The last board meeting on October 23 ran for eight hours, taking up only two out of 12 agenda items, one RBI board member said. The rest will be discussed today, the member told Reuters.
Previously, the RBI would usually propose new board members or the government would at least consult the governor before nominating members.
Under Prime Minister Narendra Modi, there has hardly been any consultation, said one former official directly aware of the appointment process, Reuters reported.
Of 18 current members in the RBI board, five come from the government bureaucracy, two are finance ministry officials, and two have close links to Prime Minister Narendra Modi and the BJP. Four have a business background, and the other five are Urjit Patel and his four deputy governors.
In August, S Gurumurthy and Satish Marathe, a former banker who was in the student wing of the BJP, were named to the RBI board. And last month, the government appointed retired bureaucrat Revathy Iyer and Sachin Chaturvedi, head of a Delhi-based think tank, while removing Nachiket Mor, who was close to RBI officials.
"Mr Modi and his coterie of cronies, continue to destroy every institution they can get their hands on. Today, through his puppets at the #RBIBoardMeet he will attempt to destroy the RBI. I hope Mr Patel and his team have a spine and show him his place," Congress president Rahul Gandhi tweeted.
The benchmark BSE Sensex surged over 150 points and the broader NSE Nifty went past the 10,700 mark in opening trade today on the back of widespread gains, just before the Reserve Bank of India's board meet, amid capital inflows by foreign funds.
Positive leads from other Asian markets too influenced sentiments. The 30-share index was trading 190.81 points, or 0.54 per cent, higher at 35,647.61 points.
The RBI has hit back by questioning whether the government wanted to destroy its autonomy and warning that when this happened in Argentina in 2010, financial markets took fright.
The government has been pressing the RBI Governor Urjit Patel to accede to a range of demands that could help to boost demand. They include making it easier and cheaper for small businesses to borrow, easing lending curbs on 11 state-run banks which had debt and capital adequacy issues, and providing more liquidity to shadow lenders.
The meeting of the board of the Reserve Bank of India (RBI) headed by Governor Urjit Patel has started: news agency ANI
The main point of friction between the RBI, led by Governor Urjit Patel, and the government is clearly the issue of how much reserves should the central bank keep locked in its safe. The people sent to the RBI board by the government want the centre to have access to surplus reserves the RBI has built up -- money that could be used for the administration's populist programmes including boosts to rural wages, fuel subsidies and buying crops at a guaranteed minimum price.
In the past week there have been signs of an uneasy truce as some government officials indicated they didn't want Urjit Patel to resign and would allow some issues to be kicked down the road, Reuters reported.
The first sign of trouble came in October when reports alluded to the government's interest in Section 7 of the Reserve Bank of India Act or RBI Act, which empowers the centre to issue directions to the "lender of last resort" -- meaning the government could take charge of policy. Last year, former RBI Governor D Subbarao said Section 7 has never been used in more than 80 years of the central bank's history.
