Tuesday, 18 December, 2018

"Consultations With RBI In Public Interest": Government Amid Autonomy Row

So far this year the rupee has declined over 13% against the US dollar So far this year the rupee has declined over 13% against the US dollar
Jodi Jackson | 31 October, 2018, 11:56

There has even been talk of RBI Governor Urjit Patel tendering his resignation if, indeed, the government does invoke Section 7 and order the central bank to act a certain way.

He said the RBI's autonomy would be strengthened by having regulatory control over state-run banks.

The autonomy of the Reserve Bank of India (RBI) is "essential" and an accepted governance requirement, the government said on Wednesday in a rare statement issued amid reports of a rift with the central bank.

Earlier, finance minister Arun Jaitley had accused the central bank of sleeping on the job for its failure to check indiscriminate lending by public sector banks between 2008 and 2014.

Last week, RBI deputy governor Viral Acharya lashed out at the Central government, saying it was trying to undermine the independence of the central bank.

The latest development follows a Friday speech by Deputy Governor Viral Acharya warning of the risks of political leaders encroaching on the central bank's independence.

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.

"Government of India has never made public the subject matter of those consultations". Second letter, the report added, was on using RBI's capital reserves and the third letter was on relaxing constraints on PCA banks for loans to SMEs.

BJP slammed Rahul Gandhi for his criticism against Prime Minister Narendra Modi over the RBI-Centre rift, and said that it reflects Congress party's grounding, "which is fast eroding in national politics".

Rajya Sabha MP Subramanian Swamy showed his support for Patel and tweeted: "If RBI governor resigns then it is a direct effect of FM blaming him publicly yesterday for NPAs".

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. The issues which were called upon by the Centre were reportedly in public interest.

In a press statement, All India Reserve Bank's Employees Association (AIRBEA) said that "undermining the country's central bank is a recipe for disaster and the government must desist". On Wednesday, reports suggested that the government had floated the idea of invoking Section 7 of the RBI Act, which would allow it to give instructions to the central bank, albeit "in consultation with the Governor". It added that the government holds extensive consultations with the RBI from time to time, during which is places its assessment on issues and suggests possible solutions, which is not disclosed to the public until a final decision has been taken.

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