The Central Board of the Reserve Bank of India Monday decided to transfer a record interim surplus of Rs 28,000 crore to the government, a move that will bolster government’s finances. Finance Minister Arun Jaitley addressed the post-Budget meeting of the Board earlier during the day, outlining various reforms carried out by the government in last four years. He also highlighted the need for fewer and bigger state-owned banks in the country.
“The Board reviewed the current economic situation, global and domestic challenges and other specific areas of operations of the Reserve Bank. Based on a limited audit review and after applying the extant economic capital framework, the Board decided to transfer an interim surplus of Rs 280 billion (Rs 28,000 crore) to the central government for the half-year ended December 31, 2018,” the RBI said in a statement.
This is the second successive year the RBI will transfer an interim surplus. In August 2018, the RBI has decided to transfer Rs 50,000 crore of surplus to the government, which included Rs 10,000 crore of interim dividend paid in March 2018. While the RBI highlighted measures taken to boost credit flow to Micro, Small and Medium Enterprises (MSMEs), the Finance Minister pitched for consolidation in the banking sector.
“With the experience in the past really has been of SBI merger, now it is second one which is taking place. India needs fewer and mega banks which are strong because in every sense, from borrowing rates to optimum utilisation, the economies of scale, as far as banking sector is concerned are of great help,” Jaitley said during a press conference after addressing the board meeting.
After the amalgamation of five associate banks and Bharatiya Mahila Bank with State Bank of India in 2017, the government earlier this year approved the merger of Dena Bank and Vijaya Bank with Bank of Baroda to create the country’s third-largest lender after SBI and ICICI Bank. To boost credit flow and alleviate sectoral stress, the RBI Governor Shaktikanta Das said the central bank has recently announced a package for MSME units having outstanding loans of up to Rs 25 crore. “All those cases are covered under the restructuring scheme. So now the ball lies in the court of the banks to restructure loans of eligible MSMEs,” he said.
Asked about regulatory action against some private sector lenders, Das said the Kotak Mahindra Bank case regarding dilution of promoter stake is pending in court. “So, it would not be correct on my part to comment on that matter because it is sub-judice. With regard to Yes Bank, it’s the issue between the regulator and regulated entity…Having said that, I would like to also say that the effort of the RBI is to constructively engage with all the regulated entities including the banks to ensure the compliance of various regulatory requirements,” he said.
While as an expert committee is currently reviewing the economic capital framework of the RBI to arrive at, among others, a dividend distribution policy of the central bank, the Central Board of the RBI Monday decided to transfer a record amount of Rs 28,000 crore as interim dividend to the government. With the government missing to meet its fiscal deficit target marginally for the current fiscal year, the funds from the RBI will help it manage its finances better. As required under Section 47 of the RBI Act, 1934, the central bank, after making various provisions, transfers balance profits to the government.
Last week, RBI warned Yes Bank of regulatory action for disclosure of nil divergence report in violation of norms. Yes Bank in a press release earlier last week had said the RBI has not found any divergence in the asset classification and provisioning done by the lender during 2017-18. In a regulatory filing Friday, Yes Bank said it has received a letter from the RBI which noted that the Risk Assessment Report (RAR) was marked ‘confidential’ and it was expected that no part of the report be divulged except for the information in the form and manner of disclosure prescribed by regulations.
To a query on whether the RBI will plans to have separate Prompt Corrective Action (PCA) norms for public sector banks, since they carry a sovereign guarantee, Das said: “(The) regulator doesn’t differentiate between public and private entity because they both are in the same market competing with each other. So you have to treat both of them equally.”