The Modi government has finalised the expert committee that will rework the prudential framework to determine the size of the RBI’s capital reserves.

The terms and reference of the panel and the names of the members will be announced soon, economic affairs secretary Subhash Chandra Garg said on Wednesday. This comes within a fortnight of Shaktikanta Das taking charge as the new RBI governor on December 12.

The central board meeting of the RBI on November 19 had decided to set up this expert committee.

“Hopefully soon, it will be announced,” Garg said on the sidelines of an event here. The secretary also indicated that the RBI would be asked to pay up an interim dividend.

The government will also announce plans for recapitalising state-run banks through a supplementary demand for grants to come up before Parliament on Thursday.

The finance ministry has been asking the RBI to “recalibrate” its capital requirements, a polite way of saying that it should draw down its reserves and give a bonus dividend to the government.

The RBI’s reserves have gone up to Rs 9.59 lakh crore on account of the revaluation of its forex and bullion reserves because of a fall in the value of the rupee over the last few years.

The economic capital framework committee is expected to work out how much capital the RBI requires and possibly would declare the remaining money as surplus, which could be given back to the government.

The pressure imposed by the finance ministry on this count as well as on reworking the norms for weak banks to allow them to lend more to small and medium businesses are seen as the triggers for the dramatic resignation of Urjit Patel as RBI governor.

The new RBI governor Shaktikanta Das, a former secretary in the finance ministry, is expected to be more sympathetic to the government’s demands.

Capital infusion

While Garg said the government would be infusing fresh capital into state-run banks, which need more equity to meet global norms, other officials said the government had finalised plans to infuse an additional Rs 40,000 crore in PSU banks, who are also suffering from a surge in bad loans.

The infusion is likely to be announced through the second supplementary demand for grants which is expected to be tabled on Thursday. The recapitalisation will be funded via bonds within the financial year 2019 and most PSU banks except State Bank of India, Punjab National Bank, Bank of Baroda and Indian Bank are likely to gain from the move. The government had planned to infuse Rs 1.35 lakh crore through the recapitalisation of bonds and the rest through budgetary allocations. In 2017-18, the government had infused Rs 88,139 crore in state-owned banks.

Officials said at least two to three PSU banks, including Allahabad Bank, could be expected to come out of the Prompt Corrective Action framework, which imposes lending restrictions on banks for their high rate of bad loans and poor financial record.

Of the 11 banks which are under PCA, only two — Dena Bank and Allahabad Bank —face restriction on lending. In all the stressed banks make up for 30 per cent of deposits and 29 per cent of advances of all the 21 PSBs and the government is in a hurry to get the norms relaxed to prop up faltering GDP growth.

Das on PCA

Reserve Bank governor Shaktikanta Das on Wednesday met more state-run bankers to discuss the issues related to relaxing the PCA framework, liquidity and credit flows to MSMEs, bankers said.

This is the second meeting between public sector lenders and the RBI since Das took charge last Tuesday.

The lenders who attended the meeting included Bank of Baroda, Bank of Maharashtra, Allahabad Bank, Indian Overseas Bank, Indian Bank, Syndicate Bank, United Bank of India and Uco among others.

“It was a general feedback meeting. The RBI wants to know the state of individual banks. There were also discussions on the issues related to liquidity and credit flows to the MSME sector,” a banker said.

Das and the four deputy governors also deliberated on the PCA framework with these lenders, said another banker.

At the first meeting last Wednesday, the bankers had sought some easing in the one-day default norms announced by the RBI through the February 12 circular, which nullified all other debt resolution mechanisms.

At the November 19 board meeting, the RBI board had decided to refer the issue of relaxing PCA framework to the board of financial supervision of the central bank.

The meeting also decided on a loan restructuring scheme for MSMEs with credit up to Rs 25 crore outside the IBC framework.