Government hoping resolution on liquidity in RBI's board meeting

The government hopes that the Reserve Bank of India (RBI) in its board meeting on November 19 will address the liquidity crisis that initially triggered a tiff between the government and the central bank, sources said.

"Liquidity is a concern and we expect to see some resolution on liquidity and credit- related issues at the next RBI board meeting," a government source said on Wednesday.

There has been a liquidity crunch in the economy, particularly among non-banking finance companies (NBFCs), following a series of defaults by Infrastructure Leasing and Financial Services (IL&FS).

Though the central bank recently made some relaxations for the NBFCs and liberalised overseas borrowing norms for infrastructure companies, the government fears that the steps taken are not adequate and the credit squeeze may spill over to other sectors.

Further, discussions were going on with the central bank on the more complex issue of RBI's economic capital framework, which will decide the amount of reserves to be maintained by the RBI while handing over the balance to the government, the source said.

"Discussions on economic capital framework between the government and the RBI is a work in progress and will continue," he said.

Earlier, speculations about the government asking RBI for Rs 3.6 lakh crore from its reserves were dismissed by Economic Affairs Secretary Subhash Chandra Garg.

Last Thursday, Garg tweeted saying it was a "misinformed speculation" and that the country's fiscal deficit target was on track. He had, however, added that the "only proposal under discussion is to fix appropriate economic capital framework of RBI."

Even on October 31, the government, in its first statement after RBI Deputy Governor Viral Acharya flagged the issue of autonomy for RBI, said extensive consultations on several issues take place between the government and the RBI but are not made public.

"Only the final decisions taken are communicated. The government, through these consultations, places its assessment on issues and suggests possible solutions. The government will continue to do so," it had said.

--IANS

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