Reserve Bank of India (RBI) deputy governor NS Vishwanathan dismissed calls for lowering capital adequacy norms for the lenders and match with global levels. In what may ruffle the ministry mandarins further, he also described the February 12 circular for NPA recognition as a "landmark reform", just like the passage of the Insolvency and Bankruptcy Code.
"The real strength will come from recognising weaknesses in the balance sheet and making provisions for them rather than pretending to believe that the balance sheet is strong," Vishwanathan said.
Two of the contentious issues behind the ongoing spat between the government and the central bank which of late has reached historic lows, has been North Block's call for addressing the liquidity crunch and one way to address the same that the finance ministry mandarins feel is lowering the
capital adequacy norms, which will push more lendable money to
the system.
Vishwanathan also said the government and the RBI is working together to provide India with a clean banking system and this is a work in progress, which has started yielding results, said deputy governor NS Viswanathan.
"Till then, we must guard against any push for dilution of standards in the name of aligning them with international benchmarks because that will be cherry-picking and will result in our banks being strong in a make-believe sense and not in reality," Vishwanathan said.
Vishwanathan's comments come on the back of the government's pressure on the RBI to ease lending restrictions on 11 state-run banks. The RBI has barred these banks from lending under the so-called prompt corrective action plan until they improve their capital ratios, reduce bad debt and become profitable.
The lending restrictions have been another key bone of contention between the RBI and the government and this rift widened after another deputy governor Viral Acharya in a speech on October 26 had said that undermining central bank independence could be "potentially catastrophic".
There has been a war of words between the RBI and the government since Acharya's speech.
With inputs from agencies.
First Published: Nov 2, 2018 10:34 PM IST
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