Things To Know About RBI Governor Urjit Patel Who Took On Government

Govt Sends Letters to RBI Invoking Section 7 of RBI Act: Reports

Govt Sends Letters to RBI Invoking Section 7 of RBI Act: Reports

Finance ministry and RBI are said to have differed on the central bank's handling of weak public sector banks, tight liquidity in the market and ways of resolving bad loans in the power sector.

In calling for the next board meeting, it appears that Patel may decide not to resign, as was speculated by a handful of media publications.

"You see (between) 2008 to 2014, after the global economic crisis, to keep the economy artificially going, banks were told open your doors and lend indiscriminately", Jaitley said at India Leadership Summit organised by US-India Strategic Partnership Forum. When such a measured perspective of an independent central bank as a key element of durable economic prosperity is missing and/or government myopia so rife as to lead to regular inroads into central banking apparatus and decisions, unfortunate accidents can arise. Martin Redrado, the central banker, made a decision to go because the Argentine political leadership ordered the bank to transfer its reserve into the government's kitty. Governments that do not respect central bank independence will sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution; their wiser counterparts who invest in central bank independence will enjoy lower costs of borrowing, the love of global investors, and longer life spans. Sources said never in the history of RBI has a direction under Section 7 of RBI Act been issued to the central bank. RBI and the government have reportedly been at the loggerheads over several issues including the government demanding ease in lending rules for at least 11 banks under prompt corrective action (PCA) framework, while the regulator thinks otherwise.

The government wants the RBI to dilute PCA guidelines so that these banks could lend to NBFCs.

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The rift between the RBI and the government has spilled into the public domain after Deputy Governor Viral Acharya said last week that undermining central bank independence could be "potentially catastrophic", indicating the authority is pushing back against government pressure to relax its policies and reduce its powers ahead of a general election due by May. They also said RBI stand on technical issues is undisputed. "The government will continue to do so".

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.

As mentioned in the report, Acharya's speech was only a strike in the long-running tug of war between the government and the RBI on whether the bank should part with some of its Rs 3.6 lakh crore reserves to fund the country's fiscal deficit.

The RBI deputy governor reminded that unlike governments, which often have a short-term horizon, the central bank works on a long-term agenda.

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