June 02 2020
Board committees to assist RBI
21 November 2018

‘Aim is to move to a system of rule-based decision making from the present discretion-based one’

The Reserve Bank of India (RBI) is set to get a makeover in line with its global counterparts, with several board committees to be formed on various aspects like technology, risk management, banking regulation, supervision, among others, to assist the central bank in its operations.

Proposed by the government, the issue will be discussed in the next board meeting of the central bank, scheduled for December 14. The other issue of improving governance standards of the RBI was on the agenda for Monday’s board meeting but could not be discussed. The third matter, relating to liquidity facility to non-banking finance companies, will also be discussed in the next board meeting.

“The aim is to move to a system of rule-based decision making from the present discretion-based one,” said a person familiar with the development.

“At present, there are no such committees of the central board. The board will discuss the issue in the next meeting,” the person said adding there could be a committee which will be formed to study the matter. The move is also seen to make the RBI management accountable to the board and making the board more hands-on. Till now, the board has not been involved in any policy-related matters but is engaged in providing a broader vision to the regulator.

On Monday, after discussing several contentious issues during the nine-hour long board meeting, decisions were taken on four aspects: forming a committee on RBI’s economic capital framework, debt recast scheme for micro, small and medium-sized enterprises, extending the deadline for last tranche of capital conservation buffer by one year and review of banks under prompt corrective action by the Board for Financial Supervision (BFS).

According to sources, the BFS that comprises the governor, four deputy governors and a few board members, will study the performance and earnings of banks of the first six months of the current fiscal that are under the prompt corrective action framework of RBI. Accordingly, a decision will be taken to bring out some lenders from PCA depending on their performance. At present, 11 out of 21 public sector banks are under the PCA framework.

According to a Kotak Securities report, several public sector banks that are under PCA will get some relief on the capital adequacy ratio as the deadline for implementing the last tranche of 0.625% under the Capital Conservation Buffer (CCB), has been extended by one year, that is, up to March 31, 2020.

$1.7 billion relief

“The capital infusion programme from the government, which has been the only source of capital for these banks, gets relaxed because of the revised framework. Our calculation suggests that the government has probably received a relief of $1.7 billion because of the delay in transition as they would have had to infuse this capital by FY2019,” it said.

On debt recast for MSMEs, the scheme will be applicable only to standard assets that are under stress and for loans for up to ₹25 crore. RBI will now prepare the fine print for the scheme and will take about 15 days to announce it formally.



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