India wants to discuss governance issues with RBI

New Delhi

INDIA'S government wants to discuss changes to the Reserve Bank of India's governance structure at a board meeting next month, including setting up some oversight panels, Economic Secretary Subhash Chandra Garg told ET Now.

Mr Garg, who is a government nominee for the RBI board, told another television channel, CNBC-TV18, that the administration will ask for more interim dividends from the central bank as it seeks to plug gaps in its budget before a general election next year.

The proposals to discuss governance at the RBI's Dec 14 board meeting may further inflame tensions between the finance ministry and central bank. The two have been at loggerheads over issues including the transfer of surplus funds, easing of bad-loan rules and providing liquidity to the shadow-banking sector. Signs of a truce emerged at a meeting between the two sides last week, but Mr Garg's comments suggest the dispute is far from over.

"We should not shy away from discussions or have a fresh look," Mr Garg told ET Now. Any changes to the board's governance structure shouldn't be construed as an attempt to control the RBI's powers, he said.

The RBI's board is an advisory body that guides the regulator, leaving decision-making to governor Urjit Patel and his colleagues. Bloomberg reported earlier this month that the government is proposing changes that will enable closer supervision of the central bank.

Swaminathan Gurumurthy, a chartered accountant nominated to the RBI board by the government, and other nominees such as Mr Garg and Rajiv Kumar, have recently commented about perceived shortcomings in banking supervision, the flow of credit to industry and the need for easing financial conditions to counter a crisis in the shadow-banking sector. Mr Garg told CNBC that the tight liquidity conditions were a concern and would be discussed at the next board meeting.

At the previous RBI board meeting last week, the central bank said it would set up a committee to look into its capital framework.

"At the next meeting of the board, there will certainly be a determined push by the government to make the board decide on more issues," former finance minister Palaniappan Chidambaram wrote in the Indian Express on Sunday. "If Urjit Patel does not stand his ground and yields more space, another institution - a venerable one - would have fallen." BLOOMBERG

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