RBI chief's meeting with public sector banks: Liquidity of economy to dominate discussions

The economy's liquidity will be uppermost during the new Reserve Bank of India chief's first meeting with public sector banks (PSB), banking sources feel.

Shaktikanta Das' remarks soon after assuming office on Wednesday give an inkling of the priorities he has set after succeeding Urjit Patel on the hot seat.

The two major sticking points in the relations between the RBI under Patel and the North Block were the need for prompt corrective action by public sector banks and the capital adequacy norms. Both address the same issue of liquidity in the economy.

Therefore, the Reserve Bank governor's focus on the banking sector is imaginable considering the acrimony that its reforms generated between Patel and the finance ministry led by Arun Jaitley.

Ahead of the key meeting, Das said the regulator needs to take more measures to revive the lenders. Observers say the focus on reviving the lenders is a dead giveaway on the likely drift of RBI action.

The government has been pressing the regulator for steps that would revive the sector, which has been hit by mounting non-performing assets. The government reckons that the tight regulatory norms on capital adequacy and the Basel norms are squeezing liquidity from the market.

The Narendra Modi government has bet heavily on employment generation and the micro, small and medium enterprises sector (MSME) ahead of the election year. For this, the government needs the RBI to give banks a longer rope to sustain the liquidity.

A news report said citing banking sources that the RBI has not set any specific agenda for the meeting. But they think that the concerns over the prompt corrective action banks, stressed loans and capital adequacy are likely to come up for discussion.

There could be no doubt about where Das stands with regard to the relationship between the central bank and the government. "We have to have stakeholder consultation with everybody. The government is not just a stakeholder, it also runs the economy and country. So, there has to be free, fair, objective and very frank discussions between the government and the RBI. I will like to believe that all issues, howsoever contentious, can be resolved through discussions."

The meeting with the PSB is the first of several crucial discussions Das would be undertaking with various stakeholders in the next few days. The meeting comes in the backdrop of rating agencies like Moody's and Fitch flagging concerns over Patel's sudden exit. It would be Das' responsibility to ensure that such concerns are unfounded.