RBI deputy governor Viral Acharya calls for independence, as central bank under pressure to ease credit to small firms

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Updated: October 29, 2018 11:20:15 AM

Even as the ongoing tug of war between the RBI and government escalates, with Deputy Governor Viral Acharya recently calling for independence of the central bank, pressure on RBI to ease credit to small firms and relax lending rules has also increased.

While, the RBI Central Board holds diverse opinion on the matter, a few other part-time and non-official members back the full-time directors from within the central bank.

Even as the ongoing tug of war between the RBI and government escalates, with Deputy Governor Viral Acharya recently calling for independence of the central bank, pressure on RBI to ease credit to small firms and relax lending rules has also increased. A section of the recently-appointed non-official directors to the RBI’s board of MSME have continuously raised a demand to relax central bank’s PCA framework for a few banks so as to ensure better credit flow to stressed sectors at a time when growth is apparently witnessing a slowdown.

The Indian Express reported citing unidentified sources that S Gurumurthy of Swadeshi Jagran Manch, who is now a part-time, non-official director on RBI’s Central Board, has been strongly making this demand for sometime now.

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“Some other directors nominated by the government, including former cooperative banker Satish Marathe, former Indian Audit and Accounts Service officer Revathy Iyer and Director General, RIS, Sachin Chaturvedi, have also differed with RBI’s full-time directors on these issues,” The Indian Express reported.

RBI’s position

While, the RBI Central Board holds diverse opinion on the matter, a few other part-time and non-official members back the full-time directors from within the central bank.  The central bank is also of the view that pulling banks out of the PCA framework is in conflict with RBI’s position to establish an environment of ‘sustainable banking.’

RBI data

The gross bank credit deployed by the RBI till August end 2018 shows that a rise of just 1.9 percent on-year has been witnessed by the industry in credit. While the credit to medium enterprises has risen by 6.5 percent, micro and small enterprises has witnessed an increase of 2.6 percent, RBI data showed. However, the credit to the services sector has recorded a phenomenal 26.7 percent growth. The MSME segment accounts for a meager nearly 6 percent of the gross bank credit.

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