RBI-govt spat: Uneasy calm prevails as both sides seek to cool down temperatures, but rift far from over

At the RBI board meeting on that day, neither side actually blinked on the issue of transferring reserves from the RBI to the government’s accounts In the Cold War era, they called it détente : but 19 November was not for the first time that there was an easing in the strained relations between the Reserve Bank of India and the government. At the RBI board meeting on that day, neither side actually blinked on the issue of transferring reserves from the RBI to the government’s accounts; the risk of another face-off between the government and the central bank hasn’t been lowered. Four key points emerged: a committee would examine an economic capital framework for the central bank; a certain amount of additional relief for small borrowers would be considered by restructuring SME loans up to Rs 25 crore; a possible review of the prompt corrective action framework would be undertaken by the BFS, and the deadline for banks to meet the capital conservation buffer requirement under Basel III norms would be extended till 2020. The ECF is about arriving at a formula that will decide how much of the RBI’s ‘profits’ should be transferred to the government every year without compromising the financial strength of the central bank.