RBI, govt to hold consultations frequently, says Finance Ministry

RBI governor Urjit Patel may consider resigning: sources

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.

Representatives at the Reserve Bank weren't immediately available for comment.

"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", he said. In contrast, a central bank plays a test match, trying to win each session but, importantly, also survive it so as to have a chance to win the next session, Acharya had said. The directions reportedly come on the matters related to the public.

The counsel representing RBI had said that Section 7 of the RBI Act "embodies and puts in place a forum for resolution of all questions and is in one sense the repository mechanism for dealing with issues which constitute a "conflict zone". "We firmly hold that undermining the central bank is a recipe for disaster and the government must desist", the All India Reserve Bank Employees Association said in a letter.

The government has invoked never-before-used powers under the RBI Act that allow it to issue directions to the central bank governor on matters of public interest, the Economic Times newspaper reported.

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

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"The autonomy for the central bank, within the framework of the RBI Act, is an essential and accepted governance requirement". "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. Government officials had recently called for the RBI to relax lending restrictions on some banks.

Sources in the ministry of finance told Firstpost that Section 7 of the RBI Act has not been invoked.

Voicing support for Patel, Bharatiya Janata Party (BJP) leader and Rajya Sabha MP Subramanian Swamy on Wednesday said if the governor decides to leave, the blame would fall on Jaitley.

Finance Minister Arun Jaitley, meanwhile, has blamed the RBI's inability in identifying the problem of NPAs in Indian banks and lack of timely measures for the current crisis-like situation in the banking sector.

Government officials said they were surprised that Patel, who was appointed by the Modi administration in 2016 and initially cooperated with the government, is creating tension when the Centre is facing criticism over its handling of the economy before the 2019 General Elections.

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