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Central bank vs centre: NBFCs are the government's problem, not RBI's, says JPMorgan

Reacting to the outcome of the Reserve Bank of India board meet, Jahangir Aziz, head of EM Economic Research of JPMorgan, said the Non-banking financial companies (NBFCs) are not an issue that should be handled by the central bank, instead it should be handled by the government.
“This has nothing to do with the RBI. This has to do with the fact that the government over the last 10 years hasn’t done anything to improve the secondary markets transactions of these NBFC bonds that are issued to fund SMEs ... I am not surprised that there isn’t anything coming out of NBFCs. It is something that the capital markets department in the ministry of finance should be handling and not the RBI,” said Aziz.
The RBI board on Monday discussed the regulatory capital framework, a restructuring scheme for stressed MSMEs, the banks' health under prompt corrective action (PCA) framework and the economic capital framework of RBI.
“I have read the press release. I think it is sort of a ceasefire that has been announced between the RBI and the government and hopefully we will not see another disruption taking place in the coming months,” said Aziz.
“The main talking point of this release was the deferment of the 0.625 percent capital conservation buffer. That is last tranche of it and it will kick in a year or so later. Our view is that that will reduce the immediate additional capital requirement for the public sector banks by around Rs 35,000 crore. We had estimated that over the next five months, the capital requirement for public sector banks would be around Rs 1.2 lakh crore of which Rs 53,000 crore is still pending to be infused by the government as far the original recapitalisation plan of Rs 2.1 lakh crore. So out of that then there is a relief of about Rs 35,000 crore,” said Krishnan Sitaraman, senior director of CRISIL Ratings.
“The regulatory capital requirement that has been prescribed by RBI, that is one percent higher than the global requirement and even with this 0.625 percent reduction, we will still be 0.375 percent higher than the global regulatory capital requirement and it is just the one year timeframe that the deferral has been made. It is not done away with. So in that sense, there is no dilution of the existing regulatory requirement, it is just a one year time span which has been provided to meet that requirement,” Sitaraman mentioned.