The central government is set to discuss changes to the’s governance structure at a board meeting next month, including setting up some oversight panels,
As per reports, administration will ask for more interim dividends from the central bank as it seeks to plug gaps in its budget before a general election next year. The proposals to discuss governance at the RBI’s December 14 board meeting may further inflame tensions between the finance ministry and central bank.
“We should not shy away from discussions or have a fresh look,” Economic Secretary Subhash Chandra Garg was quoted as saying in media reports. Any changes to the board’s governance structure shouldn’t be construed as an attempt to control the RBI’s powers, he said.
The Centre and the RBI have been at loggerheads over issues including the transfer of surplus funds, easing of bad-loan rules and providing liquidity to the shadow-banking sector. Signs of a truce emerged at a meeting between the two sides last week, but Garg’s comments suggest the dispute is far from over.
The RBI’s board is an advisory body that guides the regulator, leaving decision-making to Governor Urjit Patel and his colleagues. As per an earlier report, the government is proposing changes that will enable closer supervision of the central bank.
Swaminathan Gurumurthy, a chartered accountant nominated to the RBI board by the government, and other nominees such as Garg and Rajiv Kumar, have recently commented about perceived shortcomings in banking supervision, the flow of credit to industry and the need for easing financial conditions to counter a crisis in the shadow-banking sector. Garg reportedly said that the tight liquidity conditions were a concern and would be discussed at the next board meeting.
Tensions between the government and the RBI worsened last month when central bank Deputy Governor Viral Acharya delivered a defence of the institution’s autonomy during a lecture. His speech appeared to have been motivated by the government’s threat to invoke Section 7 of the RBI Act, 1934, a never-used provision that allows the government to dictate policy to the RBI on matters of public interest.
At the previous RBI board meeting last week, the central bank said it would set up a committee to look into its capital framework.