In the end, expectations of an escalation of the confrontation were belied. The government and the Reserve Bank of India (RBI) stepped back from the brink and found a middle ground, giving both sides crucial space to revisit their positions. After a marathon board meeting that lasted more than nine hours on Monday, RBI made concessions on capital adequacy of banks, while two contentious issues of transfer of surplus reserves and relaxing norms for weak banks were referred to committees. Fixing a capital framework could free up RBI’s surplus reserves for transfer to the central government. The government is struggling to meet its fiscal deficit target of 3.3% of gross domestic product in the face of lacklustre tax collections, and a massive surplus transfer will help it in bridging the gap. However, there seems to be no consensus on addressing the liquidity shortage faced by NBFCs flagged by the union government. Instead, RBI announced that it would inject Rs.8,000 crore liquidity through open market operations on 22 November. The next meeting of the RBI board is likely to take place on 14 December.

(Live Mint)