A man drinks tea as he walks past the RBI headquarters in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)  

Government Expects Resolution Of NBFC, Credit Issues At RBI Board Meet

The government hopes that the Reserve Bank of India will address issues related to liquidity to non-bank lenders and credit flow for small businesses in its next board meet on Nov. 19, according to a senior government official.

The official said that some resolution on these issues—which the government thinks are major problems that need immediate attention—is expected at the meeting.

The government also believes seamless credit flow to micro, small and medium enterprises, considered the backbone of the Indian economy, is another issue needing quick resolution. There is a possibility the central bank may bring in a special dispensation for lending to MSMEs, BloombergQuint had earlier reported.

Defaults by the insolvent infrastructure finance firm IL&FS Ltd. and its subsidiaries led to concerns that non-banking lenders would be unable to refinance their market borrowings, impairing growth. The risk stemmed out of tight liquidity conditions followed by a trust deficit due to the defaults.

Dialogue On Capital Framework

Discussions over the RBI’s economic capital framework—that specifies the amount of capital the central bank should hold on its balance sheet to mitigate possible future risks—would continue, and the government doesn’t expect any quick resolution on the subject, the official cited earlier said.

The government has demanded that the RBI shell out more dividend from its reserves.

In a demand conveyed earlier this year, the government suggested that the RBI is sitting on excess capital of Rs 3.6 lakh crore. This amount would be freed if the central bank were to reduce its equity to asset ratio to 14 percent—median of the ratio of global central banks—from 24 percent as on June 2018.

The government thinks that the RBI has been very conservative in its assessment of capital buffers to meet unforeseen risks, BloombergQuint had earlier reported.