INSUBCONTINENT EXCLUSIVE:
Easing lending restrictions on some of the nation's weakest state-run banks will also be discussed.The RBI board will meet on Friday with
much of the hostility of the past two months with the government having eased, and new worries emerging about the institution's independence
Prime Minister Narendra Modi has a new ally at the Reserve Bank of India in Governor Shaktikanta Das, who may be more amenable to the
government's requests to ease lending restrictions on state-run banks and hand over more of its capital to the state
Das, 61, took office two days after Urjit Patel abruptly resigned as governor on Monday.The 18-member board, which includes monetary policy
makers, finance ministry representatives and industrialists, is expected to discuss a proposal by the government for closer supervision of
Such a move may erode investor confidence and have a bearing on the credit rating of one of the world's fastest-growing major
economies.Easing lending restrictions on some of the nation's weakest state-run banks will also be discussed
It was originally broached in October by the board then led by Patel
At a meeting in November, the central bank had agreed to form a panel to study its capital structure.(: In His Own Tweets: What New RBI
Governor Shaktikanta Das Thinks)No Fireworks"I don't think there will be any fireworks," Raghbendra Jha, an economics professor at the
Australian National University, said, referring to the Patel-era tussle with the government over the institution's autonomy
"Personal frictions between the main actors -- now that doesn't exist."That view was echoed by Swaminathan Gurumurthy, a nationalist and
journalist appointed by the Modi government as an independent board member in August
He backed the new governor's conciliatory approach to the government.Inside the board, Gurumurthy offered resistance to Patel
Pressure from the government had prompted Viral Acharya, the deputy governor in charge of monetary policy, to caution the government of a
market backlash should the central bank's independence be undermined."I don't know if the relationship is good or not, but we have to have
stakeholders consultation," said Das, who was PM Modi's key lieutenant when he unveiled his controversial plan to invalidate 86 per cent of
the currency notes in late 2016.
"The government is not just a stakeholder but also runs the country, economy and manages major policy decisions."That line of thought found
endorsement from Finance Minister Arun Jaitley.The government having a view that's different from the central bank's is "not a
confrontation," Jaitley said on Thursday
"If the government of the day is not able to convey difficulties in the system it will be failing in its duty."Tight LeashThe central bank
has so far kept a tight leash on liquidity, restricted some weak banks from lending and refused to bailout the shadow banking sector
The latter had been at the forefront of new lending in the past three years, which in turn fueled domestic consumption and economic
growth.PM Modi is keen to keep growth going ahead of a national election early next year and as recent data showed the economy's expansion
Gross domestic product growth in the three months to September slowed to 7.1 per cent from the 8.2 per cent pace seen in the previous
quarter.The new governor has said supporting growth is very much part of the RBI's mandate, a sharp contrast from his predecessor who stuck
to the central bank's inflation-targeting mandate
Das's comments stoked a rally in sovereign bonds, which extended gains for a third day Thursday on speculation the RBI will shift to a
neutral policy stance from the current hawkish bias."With Das at the helm, we now think the RBI will call a halt to the tightening cycle,"
Shilan Shah and Mark Williams, economists at Capital Economics, wrote in a note
"We no longer expect a rate increase at the next meeting in February."While that might provide short term relief to investors, the chief
worry remains: how much ground will the RBI cede
