RBI's autonomy an 'essential and accepted' governance requirement: Finance Ministry

Dwayne Harmon
October 31, 2018

Asking the government to stop arm-twisting the central bank, the letter said both should talk and sort out the issues, instead of trying to ride roughshod over RBI and warned that "what they (government) are trying is at the expense of the nation".

Reports about Urjit Patel stepping down as the RBI governor started floating following Finance Minister Arun Jaitley's scathing criticism of the central bank's "lending spree", reports quoted sources as saying on Wednesday.

"We have a fairly fragile financial system, between the public sector banks and non-banking financial companies", said Dhananjay Sinha, head of institutional research at Emkay Global Financial Services.

The government stressed on Wednesday that the autonomy of the Reserve Bank of India (RBI) is "essential" as it sought to calm investors anxious about a growing public quarrel with the central bank.

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". While the Economic Affairs Secretary declined to comment on whether Section 7 had been invoked, the official statement also made no mention of it.

Perhaps the most contentious issue remains that of the RBI's reserves and capital on the central bank's balancesheet.

Though differences between the government and RBI have peaked this year over a number of issues, including the central bank's handling of the Nirav Modi crisis and the latter's firm stand on bringing weak banks under prompt corrective action, the latest reason for the escalation is the liquidity crisis being faced by NBFCs.

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Slamming the government for citing a never-used clause of the RBI Act, former Union finance minister P Chidambaram on Wednesday alleged that the BJP dispensation is "hiding facts" about the economy and is "desperate".

The issue of Section 7 first came up during an Allahabad High Court hearing on a case filed by Independent Power Producers challenging an RBI circular issued on 12 February.

"The government of India has never made public the subject matter of those consultations". What is the need to invoke the provision now?

"Only the final decisions taken are communicated".

Earlier, a letter by the All India Reserve Bank Association had said that the deputy governor, Viral Acharya, spoken more "in disgust and despondency" due to continuous nibbling by the government and the finance ministry. "We appeal to all right-minded people and experts to speak out and persuade the government to amend, and let RBI do its jobs in an unfettered was as per statutes, mandates, practices".

The Centre has invoked Section 7 of the BI Act that empowers it to give instructions to the RBI Governor in order to act on certain issues.

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