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Part-Time Directors, Including S Gurumurthy, Pressuring RBI To Relax Its Lending Norms

RBI is being pressured to relax its prompt corrective action (PCA) norms.

Two days day after Reserve Bank of India (RBI) deputy governor Viral Acharya had warned about the catastrophic consequences of governments interfering with the central bank’s independence, it has come to light the the Bank is currently being pressured to relax its prompt corrective action (PCA) norms.

According to The Indian Express sources, some non-official directors have increased pressure on RBI to ease credit to small firms and relax lending rules.

A section of part-time directors, including S Gurumurthy, appointed by the Modi government, is making this demand.

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“Some other directors nominated by the government, including former cooperative banker Satish Marathe, former Indian Audit and Accounts Service officer Revathy Iyer and Director General, RIS, Sachin Chaturvedi, have also differed with RBI’s full-time directors on these issues,” IE reported.

Some of the other officials are of the view that this demand is direct in conflict with RBI’s position to create an environment of “sustainable banking”.

Ironically, some part-time non-official directors demanding this relaxation are of the view that Micro, Small and Medium Enterprises (MSMEs) require this measure due to the significant damage inflicted by demonetisation. However, officially, the Modi government has not accepted that demonetisation severely affected the economy, particularly MSMEs.

RBI
Source: @rbi.org.in

A central board member told IE on condition of anonymity, “Essentially, it’s a growth versus risk or credit versus sustainable banking fight,”

A second issue on which the part-time directors have locked horns with the full time directors is the liquidity crisis in the Non-Banking Financial Corporations (NBFC) sector.

“We have met the Niti Aayog vice chairman, but all instruments to prevent a crisis are with the RBI,” said an anonymous senior executive with an NBFC, highlighting that they their requests to have a meeting with the RBI top brass have not yielded results.

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Speaking about the NBFC  issue, another anonymous central board member, told IE, “Independent regulator does not mean one who doesn’t engage with stakeholders. We have come a long way with the setting up of a truly independent monetary policy committee. But the RBI must understand the nuances of central bank independence. The public institution has to be responsive to the situation. It has to at times react to the weather of the moment.”

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