Not seeking Rs 3.6 lakh crore from RBI, says govt

Senior Congress leader P Chidambaram

Senior Congress leader P Chidambaram

It later emerged that the government had invoked a never-before-used provision of the law -Section 7 of the RBI Act - to ease NPA norms so that banks can kickstart lending and support growth, and transfer more dividend to boost liquidity - issues which the central bank thinks cannot be relented. "The government has packed the RBI board with its handpicked nominees and is making every attempt to ram through its proposal at the meeting", Chidambaram said.

The meeting of the central board of the RBI on 19 November is likely to be stormy with the government determined to take up these issues and press for a decisive outcome.

A senior finance ministry official confirmed that the idea originated during the UPA tenure and also the need to fix how much surplus reserve RBI should keep and how much it should transfer to the government.

"The government stares at a fiscal-deficit crisis".

Officials in the know said the communication between the government and the RBI did not mention any amount to be transferred and only raises the issue about norms.

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Dismissing talk of fiscal deficit crisis, Garg said, "Government's FD in FY 2013-14 was 5.1%".

There is no proposal from the government to ask Reserve Bank of India to transfer its surplus reserves, said Subhash Chandra Garg, economic affairs secretary in the finance ministry, on Friday amid Opposition charge that the Centre had demanded Rs 1 lakh crore from the bank.

He added that it would be hard to quantify a percentage amount for how much of RBI's profits should be transferred to its reserves. From 2014-15 onwards, the government brought this down substantially.

The report had further claimed that the Centre in its stand for transfer had reasoned that RBI has over-estimated its capital reserves requirements resulting in the excess capital of Rs 3.6 lakh crore. "The government has actually foregone ₹70,000 crore of budgeted market borrowing this year", he emphasised. "It weakens the balance sheet of the central bank and provides a wrong incentive to the government, as it weakens the incentive to control the rapid expansion of spending and to promote some consolidation of fiscal accounts in 2010".

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