However, after a long meeting held on Monday, RBI has announced major decisions that have been taken.
Amid growing tensions with the central bank, the Finance Ministry had sought discussions under the never-used-before Section 7 of the RBI Act which empowers the government to issue directions to the RBI Governor.
"The Board made a decision to constitute an expert committee to examine the ECF, the membership and terms of reference of which will be jointly determined by the Government of India and the RBI". "Governments that do not respect central bank's independence will sooner or later incur the wrath of financial markets, ignite economic fire and come to rue the day they undermined an important regulatory institution", Acharya had said.
The RBI's central board now has 18 members, including Governor Urjit Patel and his four deputies as full-time official directors, while the rest have been nominated by the government, including the Economic Affairs and Financial Services Secretaries.
Government representatives had argued that India has prescribed capital norms that are tougher than many other countries. Government sources told IANS that the RBI said that inflation was under control, and that it had taken no measure to tighten liquidity in the system.
The government also wanted the RBI to hand over some money from its surplus reserves.
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With regard to banks under PCA, it was decided the matter will be examined by the Board for Financial Supervision (BFS) of RBI.
Going ahead, RBI mentioned that, the Board also advised that the RBI should consider a scheme for restructuring of stressed standard assets of MSME borrowers with aggregate credit facilities of up to Rs 250 crore, subject to such conditions as are necessary for ensuring financial stability. The RBI board is expected to discuss issues related to making relaxations to the PCA framework to clean up the balance sheet of banks burdened with NPAs. Though no resolution was passed in the board meeting on Monday, sources said, the central bank's official statement referred to certain "decisions" taken by the board. The ministry had suggested that this surplus can be managed jointly by the RBI and the government.
The board chose to maintain capital adequacy ratio - the minimum capital required to absorb risks - of banks at 9 per cent. Another panel of experts will be set up to examine the possibility of transferring RBI's reserves under the Economic Capital Framework committee.
"It is likely that the RBI will make concessions so that some of the PCA-affected public sector banks can get back to the business of lending, including to MSMEs, from the next quarter".
The central bank appears to have not budged and has retained the risk-weighted assets ratio (CRAR) at 9%.
However, it agreed to extend the transition period for implementing the last tranche of 0.625% under the Capital Conservation Buffer (CCB), by one year, that is up to March 31, 2020. In a way these two measures will also help the liquidity situation as banks will be able to lend more while restructuring stressed loans of SMEs.