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

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

"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 reports also claimed that Governor Urjit Patel, who has been in the limelight recently for taking a tough stand against the government, may quit.

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. Reports add that the Central government has invoked some powers mentioned under the RBI Act in order to issue directions to the RBI Governor Urijit Patel. The Economic Affairs Secretary on Wednesday, however, refused to comment anything with respect to it. The government, through these consultations, places its assessment on issues and suggests possible solutions.

"A tug-of-war between the central bank and government has occurred in the past, with exchanges usually heating up in a tough economic environment".

The issues that have cropped up between the RBI and the government range from banking regulation to payment systems and the central bank balancesheet.

Reacting to the reports, former finance minister P Chidambaram tweeted that if the Government had "issued unprecedented directions", then there would be "more bad news today". The statement issued by the union said, the hiatus has widened now and the deputy governor has spoken more "in disgust and despondency" due to continuous nibbling by the government and the finance ministry.

It further claimed that the government has invoked never used before Section 7 of the RBI act.

"Extensive consultations on several issues take place between government and RBI from time to time".

Prompt corrective action (PCA): 11 public and 1 private bank in the country have been placed under what is called a PCA framework - rules the RBI puts in place for weaker banks - which bars lending by these banks, among other things, until they strengthen their capital base.

NBFCs and Housing Finance Companies (HFCs) are suffering from asset-liability mismatches (ALM), CII noted adding that in a worst-case scenario, this could lead to a run on mutual funds and defaults in the NBFC sector.

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

"Only the final decisions taken are communicated. It shows that government is hiding facts about the economy and is desperate". However, simmering tensions came to a head on October 26, when RBI Deputy Governor Viral Acharya, speaking at the A D Shroff Memorial Lecture in Mumbai, made a scathing statement against the government. "The government will continue to do so", the ministry said.

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