Published: Wed, October 31, 2018
Money | By Bruce West

Urjit Patel may resign as Jaitley’s remarks widen RBI-govt rift

Urjit Patel may resign as Jaitley’s remarks widen RBI-govt rift

"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.

The rift between the RBI Governor Urijit Patel and the Central government reportedly widened with Central Bank's Governor considering to resign from the post of the Governor. Sources said after the consultation, RBI has to take directions from the government in "Public interest".

Recently, Finance Minister Arun Jaitley blamed the central bank for failing to stop a lending spree during 2008-2014 that left banks with $150 billion of bad debt.

Section 7 says that "the Central Government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest", a statute that has not been used in independent India, according to the Economic Times.

CII noted that RBI must work out further credit lines to provide sufficient liquidity as otherwise a severe credit crunch will dent consumer demand and growth of Indian economy.

The Central Bank Governor has called for a board meeting on November 19 to discuss the pending issues and also discuss on the issues that have led to a tug-of-war kind of situation beteween RBI and government.

Top sources said three consultations were sent to the RBI in August, September and in the first week of October by the finance ministry.

The micro, small and medium enterprises (MSME) sectors and power producers have been the worst affected, and have sought more time for resolution.

"Government of India has never made public the subject matter of those consultations".

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.

Section 7 gives the Indian government wide-ranging powers to give directions to the RBI in public interest. "There have been talks with the RBI on these issues, but invoking Section 7 (1) is something that has not come up yet but we need to also ensure that industries are not killed", he added. Only final decisions are communicated. "It shows that government is hiding facts about the economy and is desperate (sic)", he said in a series of tweets. "But it is quite worrisome to see the government trying to continuously interfere into the RBI's operations". The association said Acharya's comments about government's interventionist role vis-àvis the RBI have created a flutter across the nation.

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