Govt proposes change in rules for closer oversight of RBI, empowering board

The Indian government has proposed changing rules that will enable closer supervision of the central bank Reserve Bank of India (RBI), people with knowledge of the matter said.

Prime Minister Narendra Modi’s administration has recommended that the board of the Reserve Bank of India draft regulations to enable setting up of panels to oversee functions including financial stability, monetary policy transmission and foreign exchange management, the people said, asking not to be identified as the discussions are private.

The move is meant to empower the regulator’s board, which includes government nominees, and give it a supervisory role, the people said. The central bank’s board is scheduled to meet on Monday.

The latest proposal may heighten tensions between India’s finance ministry and the central bank, which have been at loggerheads over a host of issues that will be discussed at Monday’s meeting including the transfer of surplus funds, easing of bad loan norms, and ensuring liquidity to the shadow banking sector. While the government says the central bank isn’t providing support to boost growth, the RBI says fund transfers could undermine its independence and hurt the markets.

Finance Ministry spokesman D S Malik did not reply to two calls made to his mobile phone while the central bank spokesman was not immediately available for a comment.

The recommendations being considered include setting up several committees comprising two to three board members each. The body has the powers to frame rules under section 58 of the Reserve Bank of India Act, 1934 and no legislative change is required, the people said.

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