The board of Reserve Bank of India (RBI) on Monday decided to constitute an expert committee to examine the Economic Capital Framework (ECF), the membership and terms of reference of which will be jointly determined by the government of India and the central bank.

"The RBI Central Board discussed the Basel regulatory capital framework, a restructuring scheme for stressed MSMEs, bank health under Prompt Corrective Action (PCA) framework and the ECF of RBI," the bank said in a statement after a nine-hour-long board meeting.

With regard to banks under Prompt Corrective Action (PCA), it was decided that the matter will be examined by the Board for Financial Supervision (BFS) of RBI, the bank said.

On micro, small and medium enterprises (MSMEs), RBI said, "It should consider a scheme for a restructuring of stressed standard assets of MSME borrowers with aggregate credit facilities of up to Rs 25 crore, subject to such conditions as are necessary for ensuring financial stability."

The board, while deciding to retain the Capital to Risky Asset Ratio (CRAR) at 9 percent, agreed to extend the transition period for implementing the last tranche of 0.625 percent under the Capital Conservation Buffer (CCB), by up to March 31, 2020, the bank added.

The meeting has been called amid the growing tensions between the centre and the RBI after the finance ministry recently sought discussions under the never-used-before Section 7 of the RBI Act which empowers the government to issue directions to the RBI governor.

On RBI's decision on MSME, R Gopalan, former finance secretary said that it would have been taken by the central bank itself without having to get it discussed in the board.

"In my view, the outcome of the meeting today is something on which could have been finished in about an hours’ time, it need not have to wait for nine hours,” Gopalan said.

The government and independent board members like S Gurumurthy have been pressing the central bank to provide more liquidity to non-banking finance companies (NBFCs), ease lending rules to small businesses, relax norms for weak banks and part with more of RBI's surplus reserves to boost the economy.

RBI deputy governor Viral Acharya had in a speech last month talked about the independence of the central bank, arguing that any compromise could be "potentially catastrophic" for the economy.

On Saturday, finance minister Arun Jaitley said that growth must not be throttled by limiting credit availability and liquidity.

There has been a liquidity crunch in the economy, particularly among NBFCs, following a series of defaults by the Infrastructure Leasing and Financial Services (IL&FS).

Though the central bank recently made some relaxations for the NBFCs and liberalised overseas borrowing norms for infrastructure companies, the government fears that the steps taken are not adequate and the credit squeeze may spill over to other sectors.

The RBI's central board currently 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.

The board will next meet on December 14.

First Published:Nov 19, 2018 9:05 PM IST