Skip to content
Search

Latest Stories

Indian Government To Run Power Play At Next RBI Board Meeting: Sources

For all the cordiality on show at the end of Reserve Bank of India's last board meeting, tensions could re-surface when it next gathers on December 14 as the government aims to ramp up pressure for changes in the way the central bank operates.

A majority of the 18-member board, now stacked with government nominees, intends to press for reduced curbs on lending and governance changes that would give the board more say, according to three sources with direct knowledge of what was said when the board last met on November 19.


Like the government, most board members feel that RBI should be "more transparent and accountable" for its decisions, said one source, who was also aware of discussions held subsequently within the government.

Prior to the November meeting, senior officials in prime minister Narendra Modi's administration had cranked up the pressure, publicly and privately, on policy matters, raising fears among former central bankers that the RBI was at risk of losing independence.

With a general election due by May, and voters concerned about weak farm incomes and whether enough jobs are being created, Modi is keen to stimulate the economy and is looking for the RBI to allow easier lending policies.

"The relationship between the RBI and the government is like a stretched rubber now," said a former top RBI official. "Once stretched the rubber will never return to its original size. The memory of this significant assault on the autonomy of the central bank will last for a long time."

The worsening atmosphere between the government in New Delhi and the central bank in Mumbai fed media speculation earlier this month that RBI Governor Urjit Patel might consider resigning.

In the past, the board has acted as little more than an advisory body, but under the 1934 law that established the central bank it has the ability to possess real teeth and force policy change.

To speed along its transformation, the government has appointed experts from various fields, including accounting, technology and finance to the board.

At its next meeting, it is likely to review how the central bank and the board engage, as well as the functioning of the sub-committees of the board, the sources said.

"The next board will take up the agenda pending from the earlier two meetings," a second source said. "This mainly includes governance at the central bank, the relationship between the board and the RBI and other related issues."

Those other issues could include providing more liquidity support to a weakened non-banking finance sector, functioning of the sub-committees of the central board and easing lending curbs on 11 state-run banks who are under a prompt corrective action plan (PCA) imposed by the RBI.

"RBI governance, PCA and liquidity are our top priorities,” said the first source, adding he expected the RBI to accept that viewpoint sooner rather than later.

Ex-RBI officials, including a governor and a deputy governor, said that never before has the board tried to interfere in the central bank's regulatory functions.

The finance ministry and RBI spokesmen did not have a comment for this story.

Top government officials have pressed the RBI to ease capital rules for banks, provide more liquidity to the shadow banking sector, support lending to small businesses and let the government use more of the RBI's surplus reserves to boost the economy.

At its meeting last week, the RBI's board had decided that a sub-committee will look into the matter of easing curbs for the 11 banks and make recommendations to the board.

That decision had followed on from the October board meeting, which noted an improvement among some banks under the PCA, based on parameters including bad loan recovery, higher deposit growth.

At that time, the RBI had wanted to wait a while longer to see if the improvement was sustained before lifting the curbs, a third source said. But the government believes waiting would invite more risks and expects the RBI to lift curbs on four of the lenders.

"We can't leave a patient in the hospital for a longer period as it faces a risk of catching an infection or spreading infection among other patients," the second source said, adding that the PCA list could not be a static one.

Unhappy about such pressure, late last month RBI Deputy Governor Viral Acharya warned that undermining central bank independence could be "catastrophic".

That triggered a public spat between the two sides and tension in the run-up to the board meeting last month at which the RBI agreed to relax an international capital norm for banks.

The board also entrusted the government and the RBI to set up a committee to decide on a specific method of transferring surplus reserves from the central bank to the government, a thorny matter for both sides.

"The main issue that underlines the rift is that the government feels that there has been inadequate interactions and consultations between the government and the RBI on all these issues," said the third source.

Reuters

More For You

Rosneft in early talks to sell India refinery stake to Reliance

Reliance Industries chairman Mukesh Ambani (Photo: Getty Images)

Rosneft in early talks to sell India refinery stake to Reliance

RUSSIAN oil major PJSC Rosneft Oil Company is in early discussions with Reliance Industries to sell its 49.13 per cent stake in Nayara Energy, an Indian energy company that operates a 20-million-tonnes-per-year oil refinery and 6,750 petrol pumps, sources familiar with the matter said.

The deal, if finalised, would see Reliance overtake state-owned Indian Oil Corporation (IOC) to become India’s largest oil refiner. It would also provide Reliance with a significant expansion in fuel retailing, where it currently holds a relatively small presence.

Keep ReadingShow less
modi-trump-getty
Trump shakes hands with Modi during a joint press conference at Hyderabad House in New Delhi on February 25, 2020. (Photo: Getty Images)
Getty Images

Key issues in India, US trade talks

TRADE talks between India and the US have hit a roadblock over disagreements on duties for auto components, steel and farm goods, Indian government sources said to Reuters, dashing hopes of reaching an interim deal ahead of president Donald Trump's July 9 deadline to impose reciprocal tariffs.

Here are the key issues at play:

Keep ReadingShow less
Anil Agarwal

Vedanta Resources, which is based in the UK and owned by Indian billionaire Anil Agarwal, has been working on reducing its debt. (Photo credit: Getty Images)

Getty Images

Anil Agarwal’s Vedanta Resources signs £438 million refinancing deal

VEDANTA LTD said on Thursday that its parent company, Vedanta Resources, has signed a loan facility agreement worth up to £438 million with international banks to refinance existing debt.

The refinancing move, where old loans are replaced by new ones, often at better terms like lower interest rates, has led ratings agencies such as S&P Global Ratings and Moody's to upgrade their outlook on the company this year.

Keep ReadingShow less
Trump-Getty

Trump said that while deals are being made with some countries, others may face tariffs.

Getty Images

Trump says major trade deal with India may be finalised soon

US PRESIDENT Donald Trump on Friday said a "very big" trade deal could be finalised with India, suggesting significant movement in the ongoing negotiations between the two countries.

“We are having some great deals. We have one coming up, maybe with India. Very big one. Where we're going to open up India," Trump said at the “Big Beautiful Bill” event at the White House.

Keep ReadingShow less
Asda suffers nearly £600m loss as debt and IT costs surge

Asda co-ownerMohsin Issa. (Photo: Asda)

Asda suffers nearly £600m loss as debt and IT costs surge

ASDA, one of Britain’s largest supermarkets, has reported a pre-tax loss of £599 million for 2024, swinging sharply from a £180 million profit the previous year.

The loss comes despite total sales rising by over £1 billion to £26.8bn, as the retailer faces mounting debt costs, falling sales, and spiralling spending on a major IT overhaul, the Telegraph reported.

Keep ReadingShow less