MUMBAI (Reuters) - Urjit Patel, the governor of the Reserve Bank of India (RBI), met Prime Minister Narendra Modi on Friday to discuss flash points between the central bank and the government, CNBC-TV18 tweeted late on Monday, citing sources.
The RBI is considering a loan restructuring package for small and medium-sized businesses, as well as reviewing lending curbs on some banks, the Economic Times reported earlier, in a move that could see the regulator bow to government pressure.
RBI is likely to let some banks out of prompt corrective action framework (PCA) and both the parties could soften their stance in the RBI board meeting on Nov. 19, the CNBC-TV18 tweet added. The government may not insist on taking RBI’s capital, according to the tweet.
The RBI has barred 11 state-run banks from lending under the so-called prompt corrective action plan until they improve their capital ratios, reduce bad debt and become profitable.
But the central bank and the government have been at loggerheads in recent weeks with the latter ramping up pressure on the regulator to relax lending curbs and hand over surplus reserves.
The rift widened after RBI deputy governor Viral Acharya in a speech on Oct. 26 warned that undermining central bank independence could be “potentially catastrophic”.
The package the Reserve Bank of India has agreed to explore, after analysing data from lending banks, could include some relaxation in the classification of non-performing assets, as well as providing loans to borrowers hit by the note ban and tax overhaul, the Economic Times reported.
Businesses in India have been hit by a chaotic rollout of a goods and service tax last year and a shock move to ban high value currency notes in late 2016 that have in turn hampered economic growth.
The RBI would also consider reviewing lending restrictions on banks which had reported an improvement in their financials as of Sept. 30, the Economic Times said, citing a person familiar with the discussions.
The RBI and Finance Ministry did not respond to requests for comment.
Although the government has said it respects the autonomy of the central bank, sources told Reuters last week the government will turn up the heat at the RBI’s central board of directors meeting on Nov. 19.
Reporting by Abhirup Roy and Mekhla Raina in Bengaluru; Editing by Kirsten Donovan, Bernard Orr