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RBI vs Govt: Central bank needs to have more than adequate capital to deal with risks, says Nomura

The Reserve Bank of India (RBI) is required to have more than adequate capital to deal with risks, said Sonal Verma, managing director of Nomura.
The central bank and the government discussed the Basel regulatory capital framework and restructuring scheme for stressed micro, small and medium enterprises in its marathon 9-hour meeting on Monday.
Reacting to the outcome of the RBI board meet, Verma said, “The RBI needs to have more than adequate capital to deal with the risk and there are multiple risks that as a central bank it deals with. If you look at across country then what is the optimal level of capital – there isn’t a right answer to that question. You have seen central banks with negative and central banks with huge positive capital, so there isn’t an optimal answer to this but definitely it is a positive number. However, I think one thing that we need to keep in consideration is that some of the capital is also coming from a mix of encumbered and the unencumbered reserves. So that also needs to be kept in mind but again this is a technical decision, it is a technical discussion best left to experts on what is the optimal level here."
“The measures that have been announced will help the economy be it getting more banks out of the PCA or the postponement of the capital adequacy norms by a year or the measures that be announced on the MSME side, I think we are still waiting for a lot of details to come in but broadly some near-term support does look like it is going to come in," she added.
“At the end of the day, the RBI and the government need to work together to ensure that the economy has smoother economic cycles," she further mentioned.