RBI vs Govt: Centre to soon issue a statement


Under this, the Centre can hold a consultation with the RBI Governor and issue directions in matters of public interest.

Yet, Jaitley was publicly critical of the RBI on Tuesday, saying the central bank's lax policies had contributed to banks' current woes. The following development surfaces soon after there were reports of a rift between the RBI Governor and the government.

The Economic Times said the government invoked powers under Section 7 of the RBI Act by sending several letters to Governor Urjit Patel in recent weeks on issues related to liquidity for non-banking finance firms, capital for weak banks and lending to SMEs. I am surprised that at that time the government looked the other way, the banks looked the other way, I do not know what the central bank was doing.

One report indicates that consultations between the Centre and the RBI have been initiated under Section 7, but that no specific directions have been given yet. It has put lending curbs on some weak state-run banks, while the government - facing an election early next year - wants to ensure banks continue to lend to boost economic growth. On Friday night, the RBI Deputy Governor Viral Acharya warned that undermining a central bank's independence could be "potentially catastrophic", in an indication that it is pushing back hard against government pressure to relax its policies and reduce its powers.

The government officials Reuters spoke to on Monday declined to be identified because of the sensitivity of the subject. During his speech, he said in terms of decision-making, the government's horizon was that a T20 cricket match, while that of the RBI's was a test match.

The directions can be given on the matter which the government may consider of public interest.

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The officials in New Delhi were particularly angry that Acharya launched the attack while Modi was about to head to Japan for talks with Prime Minister Shinzo Abe, the first source said.

Patel had come under increasing criticism from the banking industry as well as the government over his handling of non-performing assets (NPAs) and his stance on the autonomy of the RBI. Patel and his deputy governors are expected to meet top finance ministry officials on Friday.

According to sources, the government is not happy with Acharya's speech.

Government officials believe that RBI Governor Urjit Patel has some responsibility for the controversy, and he can not expect an extension of his current three-year term - which ends next September - "as his right", one of the officials added. A little before 12 noon on Tuesday, a smiling Patel arrived at the Finance Ministry in North Block along with his four Deputy Governors, acknowledging mediapersons' greetings.

The dispute between RBI and the government has been simmering for a few months now.

It is anxious that the central bank's hawkish monetary stance and stringent regulations on lending by state banks could push economic growth below 7 percent in the October-December quarter - the last quarter for which data would be available ahead of the general election.