The government wants to be more involved in RBI's decision-making process, because it is a number of critical issues, such as the one-day default of defaulting a bank into NPA. The sources stated before the central bank's important board meeting.
The government, as the representative of the people, should be included in the critical policy decisions made by the Reserve Bank of India (RBI), he added. To emphasize this point, the government said that the quorum of some subcommittees of the government is completed with the presence of the governor and four deputy governors, and does not require the presence of any other executives.
However, the central board of the RBI is governed by the governor and includes two government candidate managers and 11 independent directors. At the moment, the central board has 18 members and envisions it to reach 21.
On Monday, the board is expected to ease the government's norms on lending to the MSME sector, the Emergency Correction Action (PCA) framework for weak banks and the easing of the appropriate amount of reserves to be provided by the central bank. among others.
The sources also said that the government and the Reserve Bank are moving around to achieve an appropriate solution to loosening the PCA framework and easing lending norms for micro, small and medium-sized enterprises (MSMEs).
Although it is not in this board meeting, it is stated that the issue of loosening the PCA framework initiated by the Ministry of Finance will be reached in the next few weeks.
As a result of relaxation, some banks may exit the PCA framework by the end of the current fiscal year. 11 of 21 state-owned banks are below the PCA framework. These are Allahabad Bank, India United Bank, Corporation Bank, IDBI Bank, UCO Bank, Bank of India, Central Bank of India, Indian Overseas Bank, East Trade Bank, Dena Bank and Maharashtra Bank.
The PCA framework is activated when banks are in violation of any of the three key regulatory triggering points – that is, the risk weighted asset ratio, non-net assets (NPA), and assets return (RoA).
The sources agreed that the RBI would agree to alleviate credit norms for MSBs, including rigid rating criteria, to improve credit flow to the sector in question. In addition, the central bank is expected to propose special distribution to non-bank financial companies (NBFCs), which are facing the MSME sector and liquidity issues.
The government believes that MSMEs employing about 12 crore employees play a critical role in the economy and that the sector in which the demonization and implementation of the Goods and Services Tax (GST) has been hit needs some support.
However, the central bank opposed the government's request for a special agreement for the MSME and NBFC sectors, as they were considered vulnerable. Last week, Finance Minister Arun Jaitley said the need for minimizing NPAs was needed to maintain the power of the banking system and help the economy grow.
As the Finance Minister said, the Minister of Finance, who said that duy it needs loans in sectors that need credit,, is a powerful banking system that can only improve the credit in sectors that need loans. Today, NBFCs need credit because most of the lending is done by them. "