Skip to content
Search AI Powered

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

Essar-Oil-UK-Getty

Essar Oil UK is advancing decarbonization at its Stanlow Refinery with two key projects supported by Industrial Energy Transformation Fund (IETF) grants. (Photo: Getty Images)

Essar, 24 other firms get £51.9m to cut industrial carbon emissions

THE GOVERNMENT has allocated £51.9 million to support 25 businesses in reducing carbon emissions as part of the Plan for Change aimed at driving economic growth and rebuilding Britain.

The funding covers projects across various industries, including food manufacturing, cement production, and glass processing.
Companies receiving funding include Essar Oil UK, Nestlé's coffee processing site in Staffordshire, Heinz's baked bean factory in Wigan, and Hanson Cement in North Wales.

Keep ReadingShow less
Tesla-Getty

Tesla has faced challenges in 2024, reporting its first annual decline in deliveries as incentives failed to increase demand for its ageing vehicle lineup. (Photo: Getty Images)

Tesla received nearly £200m in UK government grants since 2016: Report

ELON MUSK’s electric vehicle company Tesla has received £191 million in grants from the UK government since 2016, according to an analysis by Tussell.

The majority of the funding, £188m, was provided by the Department for Transport (DfT) through the plug-in car grant scheme, which aimed to promote the adoption of electric and plug-in hybrid vehicles, The Guardian reported.

Keep ReadingShow less
CES-2025

CES 2025, organised by the Consumer Technology Association (CTA), will be held from 7 to 10 January.

Indian tech innovations to shine at CES 2025, says top executive

THE INDIAN technology sector continues to capture attention, with several startups and entrepreneurs showcasing their innovations at CES 2025, the world's largest tech event.

John Kelley, vice president and show director of CES, described the Indian tech story as “fascinating” and highlighted its growing global significance.

Keep ReadingShow less
Anil Agarwal acquires London's historic Riverside Studios

Anil Agarwal

Anil Agarwal acquires London's historic Riverside Studios

THE founder and chairman of Vedanta group Anil Agarwal is the new owner of the iconic Riverside Studio in London, a statement said on Wednesday (8).

The 100-year-old studio, which is a renowned global centre for arts and located on the north bank of the river Thames in the centre of London, will now operate under the name ‘Anil Agarwal Riverside Studios Trust’, it informed.

Keep ReadingShow less
india-gdp-iStock

India's GDP growth was 9.7 per cent in 2021-22, 7 per cent in 2022-23, and 8.2 per cent in 2023-24. )Representational image: iStock)

India's GDP growth projected to fall to 6.4 per cent in FY25

INDIA's gross domestic product (GDP) growth is projected to decline to 6.4 per cent in the financial year 2024-25, marking its lowest rate in four years, according to government data released on Tuesday. The slowdown is attributed to weaker performance in the manufacturing and services sectors.

The growth rate of 6.4 per cent, estimated by the national statistics office (NSO), is the lowest since the contraction of 5.8 per cent recorded during the Covid-19 pandemic in 2020-21. GDP growth was 9.7 per cent in 2021-22, 7 per cent in 2022-23, and 8.2 per cent in 2023-24.

Keep ReadingShow less