Finance minister Nirmala Sitharaman (centre) with RBI governor Shaktikanta Das, finance secretary Rajiv Kumar and others at a meeting of the FSDC, in New Delhi on Thursday.  (Photo: PTI)
Finance minister Nirmala Sitharaman (centre) with RBI governor Shaktikanta Das, finance secretary Rajiv Kumar and others at a meeting of the FSDC, in New Delhi on Thursday. (Photo: PTI)

Sitharaman-led financial stability body reviews state of economy

  • FSDC meet comes in the backdrop of global economic headwinds and a banking sector crisis in India
  • RBI governor says the central bank is closely monitoring the situation at scam-hit PMC Bank

NEW DELHI : Amid growing concerns on the economy, the Financial Stability and Development Council (FSDC) chaired by finance minister Nirmala Sitharaman on Thursday reviewed the global and domestic macroeconomic situation, and issues of financial stability and vulnerability, including those concerning non-bank lenders and credit rating agencies (CRAs).

The meeting was attended by financial regulators and secretaries of the finance ministry.

A finance ministry statement said the FSDC reviewed the action taken by members on the decisions taken earlier and held discussions on proposals for further strengthening of the resolution framework for cyber security of the financial sector.

Speaking to reporters after the meeting, Reserve Bank of India Governor Shaktikanta Das said the central bank is closely monitoring the situation at scam-hit Punjab & Maharashtra Cooperative Bank (PMC Bank) and that a forensic audit is underway. PMC Bank, among the top 10 urban cooperative banks in the country, was placed under an RBI administrator on 23 September for six months due to massive under-reporting of bad loans.

RBI had imposed withdrawal restrictions on account-holders after it found alleged irregularities to the tune of 4,355 crore due to diversion of money to infrastructure firm HDIL. On Tuesday, the apex bank enhanced the cash withdrawal limit to 50,000 per account, the fourth such increase since PMC Bank was placed under its direct control.

Das also said the RBI has given its suggestions to the government for the changes that need to be made in laws regulating cooperative banks.

Separately, a senior finance ministry official said on condition of anonymity that the banking regulator and the finance ministry discussing amending the Banking Regulation Act to strengthen regulation of cooperative banks.

“We are in the process of finalizing the draft that will be opened for consultation, after which we will seek Cabinet nod and the Parliament’s approval towards making changes in the law," the official explained.

Speaking at the Global Investors’ Meet in Dharamshala on Thursday, Prime Minister Narendra Modi said in today’s global scenario, if India has stood firmly, this is because it has not allowed the fundamentals of the economy to be weakened. “We have constantly maintained our commitment on macro-economy and have abided by fiscal discipline. Today, when global economic activity has come down to 3%, India is growing at more than 5%. Recent reports suggest that in coming months, India will grow at a faster pace. Our intention is genuine as well as sensitive. There is firmness in our decisions and intentions," he added.

The core infrastructure industries’ output —measuring a basket of eight sectors accounting for two-fifth of the country’s factory output—contracted 5.2% in the month of September to the lowest level in at least 14 years, pointing to a deepening industrial slowdown in the economy. The Cabinet on Wednesday cleared a 25,000 crore package to revive stalled housing projects, which is expected to boost sectors such as steel and cement.

On Tuesday, Sitharaman had ruled out an asset quality review of non-banking finance companies, claiming recapitalisation of public sector banks would also see more money flow into quasi banking sector. “We’re giving them support," she said.

The Securities and Exchange Board of India on Monday mandated that agencies must shield their credit rating committees from the management to avoid any potential conflict of interest. This is aimed at ensuring that rating agencies are insulated from any management or fee-related discussions. According to the new norms, the managing director and chief executive of a rating firm cannot be a part of a rating committee. They require the rating committee to henceforth report to the chief ratings officer.

PTI contributed to this story.

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