Stand-off between government and RBI not a good situation

Standoff between central bank government not a happy thing,’ says RBI board member S Gurumurthy

Standoff between central bank government not a happy thing,’ says RBI board member S Gurumurthy

The Modi government plans on proposing rules that will enhance the power of the Reserve Bank of India's central board, a move that may open the door to greater government supervision, according to media reports. The body has the powers to frame rules under section 58 of the Reserve Bank of India Act, 1934, and no legislative change is required, the people said.

"There has been a softening of stance by both the Finance Ministry and the RBI but the board meeting will be a larger platform with all members having some views". Terming revision in PCA norms a matter of dispute, Gurumurthy said: "If capital adequacy is the only ground, then much of this problem won't be there".

For a nation that relies on imported capital to fund investment, failure to reach middle ground threatens to erode investor confidence in the world's fastest-growing major economy.

ET had reported earlier this month that this was one of the almost dozen issues raised by the government for discussion with the RBI under section 7 of the RBI Act. "That is the matter of dispute between the government and RBI".

Apart from the reserves transfer, the central bank's prescription for capital adequacy ratio, a measure of a bank's financial strength, of 9 percent is also a thorny issue between the two.

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Swaminathan Gurumurthy, a chartered accountant turned newspaper columnist, has set the tempo by chiding the monetary authority for being too tough in its efforts to rid banks of bad debts and arguing the case for lower reserves - a step that would give the government more cash ahead of an election year.

Gurumurthy, co-convener of the Rashtriya Swayamsevak Sangh economic wing called Swadeshi Jagaran Manch, was appointed to the central bank board in August. He also raised the issue of adoption of Basel III norms. "We create problems for ourselves where problems do not exists". He defended the goods and services tax as well, and said that while demonetisation was corrective in nature, the new indirect tax system was reformative. "We need proper discourse in Delhi because that's where the action is".

On current account deficit (CAD), Gurumurthy said there is a need to bring down it.

Dollar-rupee relationship is working against rupee for the last several decades he said, adding now we are moving towards Yen.

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