Govt wants RBI to open taps for fallen banks, NBFCs

The government has sought a special refinance window for mutual funds, NBFCs and housing finance companies (HFCs); a facility for banks to raise $30 billion overseas; a relaxation in the limits on corporate bonds for foreign portfolio investors; and easier mandatory hedging requirements for infrastructure loans of less than 10 years. 

It has also questioned the efficacy of the central bank’s framework for prompt corrective action in restoring the health of stressed banks, and building up capital buffers during periods of stress, and relaxing common equity capital requirements for banks to the level prescribed under Basel III norms. 
The board members comprise the governor, not more than four deputy governors and one each from the RBI’s four regional boards. The rest are the two officials mentioned above and government nominees from various fields. 
Others on the board are Tata Sons chairman N Chandrasekaran; former M&M finance head BN Doshi; former Gujarat chief secretary Sudhir Mankad; former chairman of the Commission for Agricultural Costs & Prices Ashok Gulati; recruitment consultancy Teamlease chairman Manish Sabharwal, Sun Pharma MD Dilip S Shanghvi, former bureaucrats PK Mohanty and Revathy Iyer, and Research and Information System for Developing Countries director general Sachin Chaturvedi. 
There are precedents in support of the board passing a resolution after a discussion on issues raised by members, said one of these persons. The upcoming meeting will be a test for how much power the RBI board wields and its influence in decision making. 
In fact, the government had raised about a dozen issues with the central bank, seeking consultations under Section 7 of the RBI Act, an option that has never before been exercised. 
The finance ministry feels that RBI is unconcerned about its worries over key issues concerning the economy,  which include the liquidity crunch faced by non-banking finance companies (NBFCs) and that the RBI’s prompt corrective action (PCA) applied to 11 stressed banks has only hurt credit flows. 
The last meeting of the RBI board on 23 October ended without addressing issues raised by the government and without passing any resolution. The government has now sought firm action through its representatives. 
Economic affairs secretary Subhash Chandra Garg and financial services secretary Rajiv Kumar are ex officio members of the board. In August, the government nominated S Gurumurthy and businessman Satish Kashinath Marathe to the board.
Gurumurthy has already written to the RBI governor complaining against deputy governor Viral Acharya’s 26 October speech that warned about the dangers of undermining the autonomy of regulators, sparking the latest rounds of skirmishes between the central bank and the government. 
According to Gurumurthy, who has been appointed to the RBI board to articulate government’s views, the RBI governor and his deputies are mandated to exercise management powers subject to board’s directions under the RBI Act.