After 9-hour long board meet, RBI decides to share surplus, relaxes PCA norms : What you should know

The marathon 9 hour long board meeting finally ended on a positive note on Monday amidst the alleged rift between the RBI and the Modi government over several issues including how much capital the apex bank needs, lending norms for small and medium enterprises and rules for weak banks. RBI Governor Urjit Patel and his deputies came face to face with government nominee directors -- Economic Affairs Secretary Subhash Chandra Garg and Financial Services Secretary Rajiv Kumar -- and independent members like S Gurumurthy to arrive at a middle ground on some of the contentious issues.

Below are the highlights of the meeting including details of the RBI's decisions. 

Signalling a temporary truce, the Reserve Bank and the government on Monday agreed to refer to an expert committee the contentious issue of appropriate size of reserves that the RBI must hold, while restructuring of stressed loans of small businesses would be considered by the central bank.

The central board headed by RBI Governor Urjit Patel discussed the Basel regulatory capital framework, a restructuring scheme for stressed MSMEs, bank health under Prompt Corrective Action (PCA) framework and the Economic Capital Framework (ECF).

The Board also advised that the RBI should consider a scheme for restructuring of stressed standard assets of MSME borrowers with aggregate credit facilities of up to Rs 25 crore, subject to such conditions as are necessary for ensuring financial stability.

With regard to banks under Prompt Corrective Action (PCA), it was decided that the matter will be examined by the Board for Financial Supervision (BFS) of the RBI. 

Of the 21 state-owned banks, 11 are under the PCA framework, which imposes lending and other restrictions on weak lenders. These are Allahabad Bank, United Bank of India, Corporation Bank, IDBI Bank, UCO Bank, Bank of India, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Dena Bank and Bank of Maharashtra.

The RBI Board, while deciding to retain the capital adequacy ratio or CRAR at 9 per cent, agreed to extend the transition period for implementing the last tranche of 0.625 per cent under the Capital Conservation Buffer (CCB), by one year, that is up to March 31, 2020. 

The marathon 9 hour long board meeting finally ended on a positive note on Monday amidst the alleged rift between the RBI and the Modi government over several issues including how much capital the apex bank needs, lending norms for small and medium enterprises and rules for weak banks. RBI Governor Urjit Patel and his deputies came face to face with government nominee directors -- Economic Affairs Secretary Subhash Chandra Garg and Financial Services Secretary Rajiv Kumar -- and independent members like S Gurumurthy to arrive at a middle ground on some of the contentious issues.

Below are the highlights of the meeting including details of the RBI's decisions. 

Signalling a temporary truce, the Reserve Bank and the government on Monday agreed to refer to an expert committee the contentious issue of appropriate size of reserves that the RBI must hold, while restructuring of stressed loans of small businesses would be considered by the central bank.

The central board headed by RBI Governor Urjit Patel discussed the Basel regulatory capital framework, a restructuring scheme for stressed MSMEs, bank health under Prompt Corrective Action (PCA) framework and the Economic Capital Framework (ECF).

The Board also advised that the RBI should consider a scheme for restructuring of stressed standard assets of MSME borrowers with aggregate credit facilities of up to Rs 25 crore, subject to such conditions as are necessary for ensuring financial stability.

With regard to banks under Prompt Corrective Action (PCA), it was decided that the matter will be examined by the Board for Financial Supervision (BFS) of the RBI. 

Of the 21 state-owned banks, 11 are under the PCA framework, which imposes lending and other restrictions on weak lenders. These are Allahabad Bank, United Bank of India, Corporation Bank, IDBI Bank, UCO Bank, Bank of India, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Dena Bank and Bank of Maharashtra.

The RBI Board, while deciding to retain the capital adequacy ratio or CRAR at 9 per cent, agreed to extend the transition period for implementing the last tranche of 0.625 per cent under the Capital Conservation Buffer (CCB), by one year, that is up to March 31, 2020. 

Why did the friction arise? 

The friction between the North Block and the banking regulator came under public glare when for the first time, the RBI published a dissent note on its website, expressing its disagreement with the government in setting up a separate payments regulator.

It further widened after RBI's deputy governor Viral Acharya had made a strong case for the need of autonomy at the country's central bank -- his speech had been widely shared on social media. Citing sources, Reuters reported that the government officials are very upset with the RBI for making the rift public.