The Reserve Bank of India (RBI) board meeting on November 19 will bring government and central bank nominees face-to-face to discuss disagreements and diffuse the ongoing rift to arrive at a decision on the former's demands.
Financial markets, banks and corporate houses are eagerly waiting for Monday's crucial Reserve Bank of India board meeting.
Eventually, it will depend on the stance RBI adopts, rather what its reclusive governor Urjit Patel chooses to do at the central bank's board meeting on Monday; so far, Patel has not signalled his intent, adding to the suspense.
At the board meeting, RBI governor Urjit Patel and his deputies are expected to support its mission to clean up the bank's balance sheets.
The Congress has accused the Modi government of destroying every institution in the country and the latest one being the Reserve Bank of India. Another Section 47 requires RBI to transfer its annual surplus to the government after provisions, but does not place any restriction on further transfers.
The Union government may not invoke Section 7 of the RBI Act to issue directions to the central bank, in a bid to reduce the tension between North Block and Mint Road, sources privy to the government's thinking told The Hindu.
And though the RBI may not announce the special dividend to the government, it will most likely transfer almost Rs 50,000 crore to the Centre this fiscal as well.
Investors were on guard against any resurrection of the row between the central bank and government officials, but few were expecting fireworks as both sides have tried to dispel fears of a more serious falling out.
The RBI's central board now has 18 members, including Governor Urjit Patel and his four deputies as full-time official directors, while the rest have been nominated by the government, including the Economic Affairs and Financial Services Secretaries.
On the issue of liquidity in the system, the RBI believes that there is enough liquidity, while the government says there's a shortage of over 1-lakh crore worth of liquidity.
The corrective action plan has led to a sharp slowdown in lending in 11 state-owned banks. RBI also feels that capital transfers should be modulated as contingency reserves are necessary for the central bank.
The third most contentious issue between the RBI and the government is cash reserves. "There is no proposal to ask RBI to transfer Rs 3.6 or 1 lakh crore, as speculated", Economic Affairs Secretary Subhash Chandra Garg tweeted. "The facts which are emerging in the public space, the government wants the RBI to part with Rs 3.6-lakh crore out of Rs 9.59-lakh crore which constitutes the cash reserve of the RBI".