The split between the Reserve Bank of India (RBI) and the government is wide open, with a report claiming the central bank’s Governor Urjit Patel could resign today. The rift said to be worsen mainly after the government has invoked Section 7 of the Reserve Bank of India (RBI) Act. The letter invoking Section 7 was sent to the RBI last week, sources confirmed to India Today.
According to the sources, the government in the letter sent last week called for easing PCA (prompt corrective action) norms. PCA norms restrict fresh lending by banks and impact their lending ability. Interestingly, last week, the RBI announced that changes could be made in the PCA norms in the larger interest of the banking system.
Section 7 of the RBI Act empowers the government to issue directions necessary for public interest to the RBI from time to time after consultation with the RBI governor. The government is reportedly upset with some of the RBI’s decisions, including its move to restrict lending by NPA-laden banks under the “prompt corrective action” framework. It also wants the RBI to transfer some of its reserves to the treasury because it believes that the central bank holds excessive reserves.
Sharply reacting to these reports, the Finance Ministry in a statement has asserted that autonomy for the Central Bank, within the framework of the RBI Act, is an essential and accepted governance requirement. Governments in India have nurtured and respected this. Both the Government and the Central Bank, in their functioning, have to be guided by public interest and the requirements of the Indian economy, it added.
Meanwhile, Urjit Patel has called a board meeting on November 19 to discuss the pending issues, which created a rift between the government and the central bank, in the previous meeting held last week. Former Finance Minister Yashwant Sinha said that if RBI governor has any self-respect, then he should resign. He accused that Finance Minister Arun Jaitley has ruined the economy and the institution.