INSUBCONTINENT EXCLUSIVE:
Kolkata: The composition of the Board for Financial Supervision (BFS) could emerge as yet another point of conflict between the government
on November 19.
The finance ministry is of the view that BFS needs to be broad-based and include representatives of the government, said
people with knowledge of the matter
discuss pending issues such as easing the prompt corrective action (PCA) framework for weak lenders and ensuring liquidity for non-banking
finance companies (NBFCs).
It had been decided at the November 19 meeting that PCA would be reviewed by BFS, one of the five committees
under the central board.
The governor forms BFS by co-opting four directors from the central board as members
RBI deputy governors are ex-officio members
A deputy governor, usually the one in charge of banking regulation and supervision, is nominated as vice chairman of BFS.
The financial
Another of the three said that it was up to the RBI governor to invite government representatives.
Relations between the two sides have been
tense over the past few months
In October, deputy governor Viral Acharya sounded a warning about the damage that could be caused by undermining the autonomy of regulators
The government had cited a hitherto unused section of the RBI Act that allows it to issue directions to the regulator in a series of
communications that raised matters it wanted to discuss
Apart from PCA and liquidity, other key subjects are easing capital requirements for banks and the amount of surplus RBI needs.
BFS was set
up in November 1994 to provide guidance to RBI on financial supervision, which remains a cornerstone of banking regulation
It has assumed greater importance after the November 19 meeting.
Typically, committee meetings take place in the second half of the day
after central board meetings in the morning
But people close to RBI said BFS meetings may now have to be scheduled separately as the last two board meetings lasted more than nine hours
each.
The government wants RBI to ease PCA norms so that weaker banks can lend more freely
The central board has agreed to review the issue on December 14
primary objective of BFS is to undertake consolidated supervision of the financial sector comprising commercial banks, financial
