Narendra Modi and Urjit Patel.
Narendra Modi and Urjit Patel.(Photo: The Quint)
  • 1. The Central Bank’s Balance Sheet
  • 2. Easing Prompt Corrective Action Framework
  • 3. Diluting Basel Norms And Stressed Asset Framework For...
  • 4. Tackling NBFC, SME Concerns
  • 5. Talk To Each Other!
Explained: What Are the Points of Friction Between RBI & Govt?

The crucial meeting of the central board of the Reserve Bank of India (RBI) is now underway amid a public battle over a host of issues ranging from banking regulation to the central bank’s own balance sheet.

The issues, which were presumably brewing behind closed doors, came out into the open when RBI Deputy Governor Viral Acharya highlighted them in a speech focused on central bank independence.

BloombergQuint, through a series of articles, explains some of the underlying issues on which the RBI and the government have differing views.

  • 1. The Central Bank’s Balance Sheet

    The debate over the appropriate level of capital on the central bank’s balance sheet is an old one. The issue was raked up by former Chief Economic Adviser Arvind Subramanian, who argued the Indian central bank is overcapitalised.

    The RBI has countered this all along and believes that its reserves need to be strong to enable it to counter any risks that may emerge in the economy. Former RBI Deputy Governor Rakesh Mohan argued that at about 20 percent of GDP, the size of the RBI balance sheet has not changed much over the years.

    The government, however, feels the RBI uses too conservative a methodology to arrive at the requisite level of reserves. It thinks the RBI is sitting on excess capital of Rs 3.6 lakh crore.

    For more, read this by Ananth Narayan, associate professor - finance at SPJIMR: Understanding The RBI’s Balance Sheet

    Also Read : Government hoping resolution on liquidity in RBI's board meeting

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