5 Issues Dominating the RBI Board Meeting (Download PDF)

()

Download PDF of This Page (Size: 171.04 K)

RBI board meeting is crucial one that may alter course of relations b/w govt. & Reserve Bank of India. Bitterness b/w finance ministry & India’s central bank has reached new high, w/both camps at standoff.

Image of Five Flashpoints

Image of Five Flashpoints

Image of Five Flashpoints

Board members belonging to various parts of industry are torn b/w these 2 camps.

5 Issues Which Are Likely to Dominate RBI Board Meeting & Their Implications for Indian Economy

Raid on institutional credibility

  • Govt. has just come after RBI regulations & its balance sheet.

  • RBI as institution is perceived to have intellectual capital to determine strength of its own balance sheet.

  • Govt. should leave judgement to technocrats of RBI.

  • Global investors prefer political stability, but they value institutional credibility more.

  • RBI would soothe global investors who would soon face uncertainty of national elections.

  • Outflow of dollars could get worse if central bank is portrayed as weakening.

Choking credit or avoiding crisis

  • Govt. is accusing central bank of choking banking system by needless regulation.

  • Easing Basel norms on capital may buy govt. time but it would hardly help in reducing capital infusion.

  • Public sector banks would need colossal capital infusion irrespective of whether their min. capital adequacy ratio is 8 % or 9 % simply because bad loan provisioning will remain high.

Build bridges

  • Govt. ‘s demand that RBI provide support to non-bank lenders is not unreasonable.

  • Non-bank lenders are critical funding source for small business as last-mile connectivity.

  • In aftermath of tax reforms & demonetisation, small businesses have suffered & to deny them credit because of exogenous factors is unfair.

  • RBI understands that non-bank lenders & banks are diff. & regulations need to be diff.

  • Giving leeway to non-banks would go in long way to improve fund flow to Indian economy w/o compromising on prudence.

Enter politician

  • Biggest worry among central bank watchers is possibility of political motivations seeping into functioning of RBI.

  • Few members of board are known to harbour specific political affiliations.

  • Great care should be taken by govt. & RBI that political compulsions unless accompanied by sound economic logic do not impinge upon functioning of central bank.

Accountability good, credibility better

  • Conduct of central banks has come under scrutiny after global financial crisis.

  • Need for central banks to be accountable are recognised & RBI is not above this.

  • Central bank is answerable to govt. & Parliament. RBI would only strengthen its credibility in front of them.

  • If media reports are any indication, govt. & RBI are aware of dire consequences of standoff b/w them.

- Published/Last Modified on: January 21, 2019

Policy/Governance, Economy

Monthy-updated, fully-solved, large current affairs-2019 question bank(more than 2000 problems): Quickly cover most-important current-affairs questions with pointwise explanations especially designed for IAS, NTA-NET, Bank-PO and other competetive exams.