Sunday, 18 November, 2018

Reports of RBI Governor Urjit Patel's possible resignation rock Indian government

Open rift between RBI Modi govt as official warns of catastrophe Govt Sends Letters to RBI Invoking Section 7 of RBI Act: Reports
Lloyd Bates | 31 October, 2018, 14:34

"Even the RBI board is being sought to be stuffed in a particular direction, which would prompt the discerning people to look askance and make it hard for RBI to frame policies", the union said in the letter.

It further widened last week after RBI's deputy governor Viral Acharya had made a strong case for the need of autonomy at the country's central bank - his speech had been widely shared on social media.

Senior government officials said the RBI's guidelines on NPAs were not only stringent but "too harsh", and could have serious ramifications on industries such as MSME and power. Sentiments are already weak in the market.

Jaitley had on Tuesday blamed the RBI for failing to stop a lending spree between 2008-2014 that left banks with huge bad debts, inflaming a row that recently erupted between the government and the central bank.

The government has invoked never-before-used powers under the RBI Act that allow it to issue directions to the central bank governor on matters of public interest, the Economic Times newspaper reported. The Economic Affairs Secretary on Wednesday, however, refused to comment anything with respect to it. "For the objective, extensive consultations on several issues take place between the Government and the RBI from time to time", it added.

Meanwhile, it also emerged that the government had invoked Section 7 of the RBI Act at least invoked 3 times.

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According to Livemint, the government is unlikely to invoke Section 7 of the Reserve Bank of India Act though it is using it as a threat to get the central bank to the negotiating table on a host of issues, including the more recent liquidity crisis that has impacted non-banking finance companies.

Issuing a statement, the Finance Ministry said, "The autonomy for the Central Bank, within the framework of the RBI Act, is an essential and accepted governance requirement". That has led to a liquidity crunch in the entire non-banking finance sector. For the goal, extensive consultations on several issues take place between the government and the RBI from time to time.

"The government never makes public the subject matter of those consultations".

From the tone of Acharya's speech, it appeared that the RBI is under tremendous pressure to hand over its surpluses squirrelled away over years and hence its decision to take the issue to the people. "It shows that government is hiding facts about the economy and is desperate".

"The markets have taken these developments in their stride as there is an inherent belief that the central bank is independent and will continue with its rules-based mandate, whilst the government focuses on reforms and looks to buoy growth, drawn also by the approaching elections".

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