RBI Board Member Says Banks Could Be Recapitalised With Government Bonds

Cornelia Mascio
Novembre 17, 2018

S Gurumurthy, a director at the Reserve Bank of India, on Thursday said the standoff between the central bank and the government is "not a happy thing".

In a statement on October 31, the Finance Ministry had said "autonomy for the central bank, within the framework of the RBI Act, is an essential and accepted governance requirement".

Gurumurthy's comments came on the back of recent tension between the RBI and the government, with the latter nudging the central bank to fix the norm on surplus reserve and transfer the amount after the threshold is set.

"There has been a softening of stance by both the Finance Ministry and the RBI but the board meeting will be a larger platform with all members having some views". While the first clause of Section 7 confers powers to the government to give directions, the third part indicates that the governor shares power with the board, the people said, adding that the powers of the governor are reiterated in another section of the RBI Act.

"This does look scary and comes at a slightly anxious environment for investors", Hugo Erken, senior economist at Rabobank International in Utrecht, the Netherlands.

Finance Ministry spokesman D.S. Malik didn't reply to two calls made to his mobile phone, while the central bank spokesman was not immediately available for a comment.

The RBI's central board has, throughout its history, never been a decision-making body.

The recommendations being considered include setting up several committees comprising two to three board members each.

However lately, Swaminathan Gurumurthy, a chartered accountant who was nominated by the Modi administration to the board, and government nominees Subhash Chandra Garg and Rajiv Kumar have been vocal about perceived shortcomings in banking supervision, flow of credit to industry and easier financial conditions to overcome a crisis in its shadow-banking sector.

RBI declined the government's request and deputy governor Viral Acharya had in a speech last month talked about the independence of the central bank, arguing that any compromise could be "potentially catastrophic" for the economy.

ET had reported earlier this month that this was one of the almost dozen issues raised by the government for discussion with the RBI under section 7 of the RBI Act.

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