INSUBCONTINENT EXCLUSIVE:
Reserve Bank of India's last board meeting, tensions could re-surface when it next gathers on December 14 as the government aims to ramp
up pressure for changes in the way the central bank operates
A majority of the 18-member board, now stacked with government nominees, intends to press for reduced curbs on lending and governance
changes that would give the board more say, according to three sources with direct knowledge of what was said when the board last met on
November 19.Like the government, most board members feel that RBI should be "more transparent and accountable" for its decisions, said one
source, who was also aware of discussions held subsequently within the government.Prior to the November meeting, senior officials in Prime
Minister Narendra Modi's administration had cranked up pressure, publicly and privately, on policy matters, raising fears among former
central bankers that the RBI was at risk of losing independence.With a general election due by May, and voters concerned about weak farm
incomes and whether enough jobs are being created, PM Modi is keen to stimulate the economy and is looking for the RBI to allow easier
lending policies."The relationship between the RBI and the government is like a stretched rubber now," said a former top RBI official
"Once stretched the rubber will never return to its original size
The memory of this significant assault on the autonomy of the central bank will last for a long time."The worsening atmosphere between the
government in New Delhi and the central bank in Mumbai fed media speculation earlier this month that RBI Governor Urjit Patel might consider
resigning.In the past, the board has acted as little more than an advisory body, but under the 1934 law that established the central bank it
has the ability to possess real teeth and force policy change.To speed along its transformation, the government has appointed experts from
various fields, including accounting, technology and finance to the board.At its next meeting, it is likely to review how the central bank
and the board engage, as well as the functioning of the sub-committees of the board, the sources said."The next board will take up the
agenda pending from the earlier two meetings," a second source said
"This mainly includes governance at the central bank, the relationship between the board and the RBI and other related issues."Those other
issues could include providing more liquidity support to a weakened non-banking finance sector, functioning of the sub-committees of the
central board and easing lending curbs on 11 state-run banks who are under a prompt corrective action plan (PCA) imposed by the RBI."RBI
rather than later.Ex-RBI officials, including a governor and a deputy governor, said that never before has the board tried to interfere in
the central bank's regulatory functions.The Finance Ministry and RBI spokesmen did not have a comment for this story."HOSPITAL INFECTION"
RISKTop government officials have pressed the RBI to ease capital rules for banks, provide more liquidity to the shadow banking sector,
support lending to small businesses and let the government use more of the RBI's surplus reserves to boost the economy.At its meeting last
week, the RBI's board had decided that a sub-committee will look into the matter of easing curbs for the 11 banks and make recommendations
to the board.That decision had followed on from the October board meeting, which noted an improvement among some banks under the PCA, based
on parameters including bad loan recovery, higher deposit growth.At that time, the RBI had wanted to wait a while longer to see if the
improvement was sustained before lifting the curbs, a third source said
But the government believes waiting would invite more risks and expects the RBI to lift curbs on four of the lenders."We can't leave a
patient in the hospital for a longer period as it faces a risk of catching an infection or spreading infection among other patients," the
second source said, adding that the PCA list could not be a static one.Unhappy about such pressure, late last month RBI Deputy Governor
Viral Acharya warned that undermining central bank independence could be "catastrophic".That triggered a public spat between the two sides
and tension in the run-up to the board meeting last month at which the RBI agreed to relax an international capital norm for banks.The board
also entrusted the government and the RBI to set up a committee to decide on a specific method of transferring surplus reserves from the
central bank to the government, a thorny matter for both sides."The main issue that underlines the rift is that the government feels that
there has been inadequate interactions and consultations between the government and the RBI on all these issues," said the third source.