Dinesh Kamath's Editorial 'The Centre and the RBI address each other’s concerns' that was published in Newsband

The Centre and the RBI address each other’s concerns

In the board meeting of the Reserve Bank of India, the decisions taken by the board addressed the concerns of both the Centre and the central bank, though on balance it appears that the RBI carried the day. Two of the biggest concerns of the Centre where it was expecting an immediate resolution — relaxation of the Prompt Corrective Action framework on 11 public sector banks and provision of liquidity for non-banking financial companies — will be addressed at a future date.

The Centre’s attempt to tap the RBI’s rich reserves has also been staved off for now. The RBI has been transferring all of its surpluses to the Centre in the last five years based on the recommendations of an earlier committee led by Y.H. Malegam. The central bank partially yielded to the Centre on two other issues — the Basel capital framework for banks and easing credit flow to micro, small and medium enterprises (MSMEs). Again, by permitting debt recast for MSME borrowers of up to ₹25 crore, the RBI has attempted to address their credit concerns, which was one of the major demands of the Centre. Clearly, there was enough give-and-take in the meeting that left both sides gaining something.

That the meeting went on for over nine hours clearly indicates that there was an intense exchange of views, which is not a bad thing at all. Differences between the Centre and the central bank must be thrashed out. Theee should not be any government interference in the functioning of RBI, especially its regulatory aspect and monetary policy prerogatives. Electoral politics should not make RBI a scapegoat.

It's really a good step from both the players. They are quite happy with their decision and at last problem will somehow be solved around the table. Another refreshing thing under Modi Government is the fact that institutions are respected as independent entities and issues debated. Have we seen such a thing happening any time during the Congress rule? Why? Because they adopted a different strategy of back door operations whereby they plant complaintb by people who would obey to the dictates of the Finance Minister. Even as recently as in 2013,Chidambaram made Raghuram Rajan pay up RBI's reserves to the Govt by finding a basis from an obscure report of YH Malegam that in the normal circumstances, would have been rejected.Therefore, it is clear we now have a Government that doesn't impose itself either overtly or covertly on institutions. Having said that,this approach also has pitfalls as too much of independence can lead to situations that we witnessed in CBI ,an institution that remained so corrupt inside all along yet gave a picture of calmness outside as Govt heads in those times were in perfect sync with CBI & used it for manipulating their actions. Cat is now out of bag!

All said and done the autonomy of RBI should not be tempered with by Union Government. Allow the RBI to function within its parameters.

it is a nice development to note that issues in the world can be settled by discussion across the table rather than waging a cold war, which only keeps the rumor mongering agencies with nice fodder to chew on for days together. Now all the media agencies will have to go in search of another topic to air their views. After all issues develop between various sections of the administration in its day to day working to achieve progress in the nation. It is when such meetings take place, a clear picture results and the works undertaken proceeds fast to achieve the goal aimed at. Congrats to RBI and the govt of the day for showing the way what good governance means.