(MENAFN- Asia Times)
A marathon nine-hour-long meeting of the Reserve Bank of India's (RBI's) central board has helped ease the tension between the Indian government and the central bank for now.
The board accommodated some of the demands of the government, but on other issues it allowed the central bank to take the final decision.
At the meeting held at the RBI headquarters in Mumbai on Monday, the three most contentious issues discussed were the amount of reserves that should remain with the central bank, the RBI's strict Prompt Corrective Action (PCA) norms against 11 struggling banks, and the shortage of liquidity in the system.
The board decided to form an expert committee to examine the economic capital framework (ECF) of the central bank. The committee will determine the level of reserves the central bank should hold vis-à-vis its assets so that the excess can be transferred to the government. Its terms of reference will be jointly decided by the government and the RBI
With regard to banks under PCA, it was decided that the matter will be examined by the Board for Financial Supervision (BFS) of the RBI. The board also agreed to extend the transition period for the full adoption of Basel III norms by a year to March 31, 2020.
The Board further advised that the RBI should consider a scheme for the restructuring of stressed standard assets of Micro Small and Medium Enterprises (MSME) borrowers with aggregate credit facilities of up to 250 million rupees. However the demands of some of the board members, representing the government view, for the easing of credit flow to all MSMEs and opening a separate liquidity for non-banking finance companies were not met.
The next board meeting is scheduled to be held on December 14.
However, Moody's investor services has expressed concern regarding extending the timeline for Basel III norms' compliance and called it a "credit negative" move.
The Narendra Modi-led NDA government is concerned that low crop prices and difficulties small businesses face in borrowing may dent its prospects in the general election due to take place by May next year.
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