Given the crisis-hit NBFC sector and the weakening credit outstanding to the MSME sector, the RBI has called up for the board meet today. In addition the current rift, between the RBI and the government on RBI's autonomy will be further taken up.
And in the now long standing rift between the finance ministry and the RBI, the Indian economy is at stake which already is recovering from several of the headwinds. And in order that the economy take up its recovery path in a smooth manner, the two parties at conflict should now work on ending the hostility and arrive at a win-win situation. So, here are detailed few of the important look outs at the RBI board meet today.
1. RBI's institutional credibility should not be put at stake: It is not just that the RBI regulations have been under question but the centre has also put a question mark on its balance sheet. While the RBI is considered to have ample intellectual capital to adjudge the strength of its balance sheet, so the centre need not interfere with it.
Also, any such move,is deemed to have considerable impact on the flow of global investments as other than political stability, institutional investors give enough credit to institutional credibility. And there can be a danger of overflow of dollar if RBI's credibility is at stake, given already a scenario wherein investors will face the risk of uncertainty in elections due early next year.
2. Centre's proposal that ask RBI to support non-banking finance companies: As it is the liquidity crisis is known to hit the sector after IL&FS crisis and in its wake, RBI is being pushed to support the sector as it is a support system for small business who off late have been denied credit. So, any sort of relaxation to non-banking lenders is likely to boost up the economy with improved fund flow.
3. Political association unless with sound economic logic should not impinge with the RBI: It is also desired as unless deemed to have economic logic, political motivations and associations should not interfere with the functioning of the RBI.
4. Tightened banking regulations should not go against economic growth: The Centre at large holds the view that unnecessary regulations are hurting the banking system. And despite, PSBs capital adequacy ratio at 8 or 9%, capital infusion is a must given the higher bad loan provisioning.
5. RBI accountable to the centre and parliament: The functioning of the central bank plays a pivotal role in the economy. And so after, global central banks have come to light due to a more recent crisis, all of the central banks including India's RBI is no exception and should be accountable to whatever it does and any good accountability will only strengthen the institution's credibility.