Union minister Piyush Goyal lashes out at move by RBI under Urjit Patel to change norms of the prompt corrective action for banks.
New Delhi: Ahead of the crucial Reserve Bank of India (RBI) board meeting Friday, Railways and Coal Minister Piyush Goyal lashed out at the central bank’s decision when under former governor Urjit Patel, to change the norms of the prompt corrective action (PCA) for banks.
The RBI board is set to hold its first meeting under governor Shaktikanta Das Friday, who was appointed governor within a day of Patel’s sudden resignation Monday.
Late Thursday, Goyal tweeted that institutions needed to be accountable. “We need to know whether all the people are able to get loans from the banks easily, what is the liquidity situation in the country today.”
It is our duty to hold institutions accountable to the people of India. We need to know whether all the people are able to get loans from the banks easily, what is the liquidity situation in the country today. After that, I am sure everybody is having second thoughts.
— Piyush Goyal (@PiyushGoyal) December 13, 2018
Goyal, who was also in charge of the Finance Ministry earlier in the year, in a series of tweets also said that the government had never sought transfer of RBI’s surpluses but underlined that the money needed to be put to productive use.
There was never any intention that RBI’s capital should be transferred to Government. But their capital reserves are amongst the highest and are not being put to good use. It could possibly have been used to support the Banks just as was done in USA during the financial crisis
— Piyush Goyal (@PiyushGoyal) December 13, 2018
He also said that the RBI unilaterally decided to change the PCA framework on April 1, 2017.
Would you not want the Government to at least ask questions of the revised PCA framework – what promoted you to change the rules half way into a game? Did you discuss it with anybody, is it comparable to international norms?
— Piyush Goyal (@PiyushGoyal) December 13, 2018
The RBI, however, did take the department of financial services into confidence before amending the norms. On its part, the Finance Ministry had agreed to the changes in the provisions of the PCA framework in a letter in March 2017 besides suggesting some other measures to the way the common tier 1 equity requirement should be factored in. The RBI subsequently notified the revised PCA norms in April 2017 after incorporating these suggestions.
Also read: Shaktikanta Das expected to play it safe at his first RBI board meeting tomorrow
Modi govt in hurry to ease lending norms
The Modi government is now in a hurry to ease lending norms, especially after the state election results and the slowdown in economic growth. The government has been insisting on easing lending norms and relaxing the PCA framework so that credit can take off.
But this had led to tension between the Modi government and the RBI under Patel.
In a speech in October, RBI deputy governor Viral Acharya had strongly defended the PCA framework arguing that these norms had helped weak banks strengthen their balance sheets by improving the provision coverage ratio and reducing the losses.
“Without the PCA imposition, some banks would have incurred even higher losses and required even more of taxpayer money for recapitalisation,” Acharya had said.
“Imposition of PCA can thus be seen as first, stabilising the banks at risk, and then, undertaking the deeper bank reforms needed for longterm viability of the business model of these banks. It is important, therefore, that the PCA framework to deal with financially weak banks is persisted with.”