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RBI board members meet as government seeks credit, liquidity

RBI governor Urjit Patel's comments come barely a few weeks before the Indian government is to announce its annual budget. Photograph:( AFP )

WION Web Team New Delhi, Delhi, India Nov 19, 2018, 10.28 AM (IST)

Reserve Bank of India(RBI) board members N Chandrasekaran along with other members are meeting today amid reports of government pushing for massive capital transfer from India's central banker.

On Saturday, finance minister Arun Jaitley had said that growth must not be "throttled" by limiting credit availability and liquidity. The government is pressing for the creation of a special liquidity window for the troubled non-bank lending sector, liberalising prompt corrective action that restricts normal lending and easier credit supply for small businesses.

The government also wants relaxation in the Prompt Corrective Action (PCA) framework for weak banks and the appropriate size of reserve to be maintained by the central bank.

Economic Affairs Secretary Subhash Chandra Garg had said earlier the government is seeking "appropriate economic capital framework of RBI".

The RBI has repeatedly said it wouldn't yield the government's demands. Reports had suggested in the past week that the government was considering using Section 7 of the RBI Act through which it can direct policy moves to be undertaken by the RBI in "public interest".

"It is necessary that the growth process does not suffer due to the cleaning up of the banking system from the "collectively committed sins" during 2008-14 when the regulatory mechanisms also overlooked high debt accumulation," finance minister Jaitley had said while taking a dig at the central banker and the previous UPA government.

Reports had said the RBI is likely to agree to easing of lending norms for MSMEs to improve credit flow. The central bank is also expected to consider special dispensation for the MSME sector and non-banking financial companies (NBFCs) which have been facing liquidity issues.

Both the government and the RBI have been at loggerheads over several issues with top government officials openly accusing the central bank of stifling India's growth by not releasing capital to spur the economy at a time when oil prices have been going down steadily once again.

RBI Governor Urjit Patel is scheduled to appear before a parliamentary panel on November 27 to brief it on various issues, including the stand-off with the government, status of the economy and demonetisation.