It is important that SMEs have accessible credit, Jalan added.
Amid reports of its mounting tension with the Reserve Bank of India (RBI), the finance ministry on November 1 said the government has "nurtured and respected" autonomy of the central bank and has been holding extensive consultations with it on many issues.
"The autonomy for the central bank, within the framework of the RBI Act, is an essential and accepted governance requirement. Government of India has nurtured and respected this," it said in a statement.
The government has also for the first time ever used a provision of law to ask the RBI for resolution of differences between them on stressed loans in power sector and other issues, sources privy to the development said.
CNBC-TV18 spoke with Bimal Jalan, former RBI governor; Arvind Virmani, chairman, EGROW; Ananth Narayan, professor, SPJIMR; SS Mundra, former deputy governor, RBI and Yashwant Sinha, former union finance minister, on this issue.
Jalan said the government seeking to de-escalate its stand-off with the RBI is a very positive and very welcome move, "What was going on for the last two three days was a matter of concern and that I hope now will start on a new path as it were."
Narayan said, "Today’s communication was clearly welcome. The fact that we haven’t yet crossed the brink, we are still at a negotiating table in some sense is extremely welcome news and the markets obviously also welcomed it.”
You must have seen the letter. What are your first thoughts – do you think it’s a good end to what would have been ugly?
Jalan: It is very positive and very welcome. What was going on for the last two three days that was a matter of concern and that I hope now will start on a new path as it was.
Could both sides have deescalated it earlier- you have seen the RBI for 4-5 decades. Consultation under Section 7 is avoidable you thought?
Jalan: I don’t want to comment on the earlier differences which emerged. I won’t comment on who is wrong and right and so on. But the more important thing is there was a difference of views and that was aired in public, which was a matter of concern but now that the government has announced that everything is resolved in terms of two institutions talking to each other that is a very welcome step.
Any further comments on the prompt corrective action (PCA) into which weak banks were put. We are given to understand that MSMEs and SMEs need capital and government wanted those rules relaxed – any thoughts on this the RBI did not want weak banks to be allowed to lend to companies below A rating, was that the right way to go?
Jalan: I don’t want to comment on the right way to go. The only comment I can make is as far as SMEs are concerned and it is most important that they have accessible credit and we have to analyse the reason why there was a problem in terms of repayment and so on and then take a measure.
On the other issue any thoughts, the RBI’s capital – the central bank's position I would assume would have been that this is retained earnings over many years and therefore should not be spent in one-year but the government would perhaps want to for capitalising banks or for other social purposes. Should the RBI’s capital be touched?
Jalan: I don’t think you should put it as capital being touched. I think it’s like any other institution, the RBI when it has a surplus cash or whatever they may transfer it to the government in terms of dividends as you have seen. It has capital, it has high reserves, so it can transfer to the government as it wishes in consultation with the government.