Govt., RBI call truce after a marathon board meeting

Expert panel to review economic capital framework for future earnings

The tension between the government and the Reserve Bank of India (RBI) appeared to have defused for the time being with both agreeing to settle for a middle ground at the end of an over nine-hour board meeting on Monday. The most contentious issue between the central bank and the Finance Ministry was the RBI’s capital. Now, while the RBI has agreed to set up an expert committee on the economic capital framework (ECF), its mandate is restricted to future earnings and not the existing reserves, sources privy to the board deliberations told The Hindu . “The board decided to constitute an expert committee to examine the ECF, the membership and terms of reference of which will be jointly determined by the Government of India and the RBI,” the central bank said in a statement. Detailed presentations
Sources indicate there were detailed presentations by the RBI on economic capital as well as other issues such as the prompt corrective action (PCA) framework. On the PCA, the Board for Financial Supervision (BFS) of the RBI will review the norms and take a call if some of the parameters like net non-performing asset (NPA) ratio could be relaxed so that some of the banks come out of the PCA. There are 11 public sector banks out of 21 that are on the PCA. The BFS consists of the Governor, four Deputy Governors and a few other board members. Another significant decision was relief to micro, small and medium enterprises — the sector which is badly hit by the twin blows of demonetisation and patchy implementation of the Goods and Services Tax (GST).

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