(Source: BloombergQuint)

RBI Governor Meets Prime Minister To Resolve Ongoing Issues

Reserve Bank of India Governor Urjit Patel met Prime Minister Narendra Modi in Delhi on Nov. 9 to find middle ground amid the ongoing tussle between the government and the central bank, according to two officials aware of the development.

The meeting comes against the backdrop of the government seeking consultations under Section 7 of the RBI Act, which empowers the government to give directions to the central bank in public interest, after consultation with the Governor. The government has sought consultations on nearly a dozen issues, BloombergQuint reported earlier.

Among the issues being discussed between the RBI and the government is the flow of credit to small and medium enterprises.

There is a possibility the central bank may bring in a special dispensation for lending to micro, small and medium scale enterprises, one the two officials cited earlier said on condition of anonymity. The government had recently announced 12 measures to help the MSME sector, considered the backbone of the Indian economy.

Also read: Capital Framework, Liquidity Issues Likely To Be Discussed In RBI’s Nov. 19 Board Meeting

The government is said to favour restructuring of loans to MSMEs, which was one of the reasons the government initiated consultations under Section 7, according to a third official. Under the RBI’s current rules, no regulatory forbearance is given to restructured accounts. Once restructured, these accounts are classified as non performing.

Other issues raised by the government include diluting the prompt corrective action framework of the central bank and a change in economic capital framework of the RBI.

Also read: RBI-Government Spat: Finance Ministry Seeks Review Of Central Bank Balance Sheet