Government, RBI signal truce after marathon board meeting The Reserve Bank of India (RBI) will form a panel to study the transfer of its surplus reserves to the government—one of the key decisions that were taken at the RBI board meeting today Last Published: Mon, Nov 19 2018. 10 03 PM IST Shruti Srivastava & Anirban Nag, Bloomberg

The government and RBI have been sparring over how much capital the central bank needs and how tough its lending rules should be. Photo: Reuters

New Delhi/Mumbai: The Reserve bank of India (RBI) signalled a compromise with the government by agreeing to study its demands, including the transfer of surplus reserves—an issue that had triggered a public spat between the monetary policy makers and their political bosses.

Click here to read the liveblog on RBI board decisions taken today.

RBI will form a panel to study the transfer of its surplus reserves to the government, Sachin Chaturvedi, one of the members of the 18-member board, said in an interview to Bloomberg News. The board, which met for a little over nine hours on Monday, will convene again on 14 December, he said.

“Both the RBI governor and the finance ministry walked the extra mile,” Chaturvedi said. “They were flexible on several issues.”

The government and RBI have been sparring over how much capital the central bank needs and how tough its lending rules should be. For a nation that relies on imported capital to fund investment, the reaching of a middle ground is key to retaining investor confidence in the world’s fastest-growing major economy.

The rupee advanced and bonds rallied Monday before the RBI board meeting concluded, and amid optimism a common ground will be reached. The currency gained 0.4% to 71.6575 against the dollar, while the benchmark 10-year bond yield fell 3 basis points to 7.79%.

The agenda

Rules pertaining to transfer of the central bank’s surplus funds to the government, a key point of conflict between the two, was among the matters listed for discussion Monday, people familiar with the matter said before the meeting. Other proposals on the agenda included a dialogue on capital and risk weight norms for Indian lenders—considered more stringent than the Basel guidelines, and restructuring of some loans availed by small businesses, they said.

Getting RBI to agree to its demands will help Prime Minister Narendra Modi’s government meet budget goals by using a part of RBI reserves, and kick-start lending by weak banks to keep the economy firing ahead of an election next year.

Siddhartha Singh, Saloni Shukla, Rahul Satija and Pradeep Kurup contributed to this story.

First Published: Mon, Nov 19 2018. 10 02 PM IST