Will Central Board manage the RBI now? DH summary

The Government-Reserve Bank of India feud has taken a new turn with the Central Government planning closer supervision of the RBI, according to a Bloomberg report.

Prime Minister Narendra Modi’s administration has recommended that the Board of the Reserve Bank of India draft regulations to enable setting up of panels to oversee functions, including financial stability, monetary-policy transmission and foreign-exchange management.

DH summarises the issue in 5 points:

1. The Reserve Bank of India's Central Board currently has 18 members with five people from the Central Bank (the governor and his four deputy governors). The other 13 members include two government representatives, seven government-appointed non-official directors and four more from the Central Bank’s local boards.

2. The Central Government plans to enhance the powers of the Central Board.

3. The Central Board has never been a decision-making body -- it usually advises and guides the RBI.

4. If the government's plans go through, the Central Board will have a greater supervisory role over the RBI -- again striking at the apex bank's autonomy

5. This decision may only be a cause for greater friction between the RBI and the Central Government.

The Central Bank's Governor Urjit Patel has convened a meeting of the Board of Directors of the Central Bank on Nov. 19 to discuss issues related to liquidity for NBFCs, credit for MSMEs and a framework for new economic capital. We have to wait and see how things pan out after the meeting.