RBI Governor May Resign on 19th November for Health Reasons and Spat with the Ministry of Finance
If the feud between the government and the Reserve Bank of India (RBI) escalates further (as reported by several media organisations), there is a good chance that governor Dr Urjit Patel will throw in the towel at the next board meeting on 19th November.

Sources, who are in touch with the governor, say that he is not only tired of the fight with the government, but it has also been impacting his health in a big way.

The RBI has been at loggerheads with the government over three demands: transfer a higher portion of its reserves to the Centre to keep the fiscal deficit in control; inject more liquidity into the system to stave off a possible blowout among housing and finance companies; and relax the norms for prompt corrective action (PCA) and income recognition of banks.

The spat spilled out in the open after RBI deputy governor Viral Acharya spoke about the consequences of messing around with the central bank's independence while delivering the AD Shroff Memorial lecture in Mumbai on 26th October.

Dr Acharya had said, “Governments that do not respect central bank independence will sooner or later incur the wrath of the financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution.”
 
Since then, the government has been openly critical about the RBI and seems prepared to use its powers under Section 7 of the RBI Act to issue directives to the central bank.
 
While various governments, starting from the first prime minister Jawaharlal Nehru, have been in confrontation with RBI governors at various times, it is believed that no government has issued directives to the central bank under the provisions of Section 7 in its 83-year history.
 
Dr Patel is an unusual governor. He is extremely introverted and unimpressed by the trappings of power that the post brings with it.
 
Unlike previous governors who revelled in the sprawling heritage bungalow at Altamount Road in Mumbai allotted to them, Dr Patel had not even moved into it. This is primarily because it does not suit the needs of his aged mother who lives with him.
 
While a Mumbai newspaper reported that the bungalow is being fitted with a ramp and other changes for the governor, those who know him say that he is not too keen.
 
According to a RTI (Right to Information) query based article in the Indian Express, Dr Patel has also no support staff at home allocated by the RBI. 
 
Interestingly, Dr Acharya, the deputy governor, who is at the centre of the RBI-government faceoff, is also immune to the trappings of power and position associated with the job. 
 
Dr Acharya, who is on leave from the Stern School of Business, New York, lives in Juhu-Vile Parle, a suburb of Mumbai because he wants to be able to spend time with his parents during his Mumbai assignment. Sources say that he too may take a call on whether or not to continue, if Dr Patel chooses to quit.
 
In an election year, after the economic setback already caused by the disastrous decision to demonetise currency, the government is desperate to revitalise economic activity. But it will find it hard to give a positive spin to the resignation of two top central bankers at a time when the financial sector is in turmoil and beset by multiple scams, largely due to collusion and complicity by public sector bank chiefs, whose appointments are the government's prerogative. 
 
Nearly 10 PSBs were headless for large chunks of the NDA’s (National Democratic Alliance) first term.
 
Dr Patel took over on the eve of demonetisation and has silently carried the can for the government's disastrous decisions. There wasn't a peek out of the RBI even when Dr Patel was personally criticised for various policy changes and flip-flops that were mainly at the behest of the government. 
 
Or the fact that it took a whole year for the demonetised currency to be counted and come to the conclusion that over 99% of the scrapped notes had come back into the banking system, underlining the utter failure of the demonetisation plan. 
 
RBI insiders tell us that the notes had to be repeatedly counted under directives from the finance ministry, which was probably unwilling to accept that all the 'black money' is now sitting with banks. Moneylife's own RTI filings show that large chunks of this currency, is in JanDhan accounts.
 
While it is unclear what turn the RBI-government face-off will take at the next board meeting, we at Moneylife believe that there is certainly a need for the central bank to become more transparent and accountable to the public.  
 
Its performance as a banking supervisor has been very poor, it is not subject to any audit even on operations and it has zero accountability for its regulatory and policy decisions as well. 
 
Not only is decision making extremely slow and capricious, but the central bank has displayed the attitude that nothing it does can ever be questioned, even when those decisions have nothing to do with monetary policy.
 
RBI has not done anything effective about banks mis-selling third party products and refusing to pass on the benefits of lower policy rates to floating rate borrowers. Besides, RBI has openly defied the orders of Supreme Court and Central Information Commissioners to publish the details of wilful defaulters.
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COMMENTS

Carlos De Souza

2 days ago

Urjit Patel was the RBI Governor when "note-bandi" happened. Why did he not object to it then ? Especially, since he was not even consulted about it. Any idea why he kept quiet ??

REPLY

Govinda Warrier

In Reply to Carlos De Souza 2 days ago

Did Unit Patel or his predecessor say that RBI was not consulted? Why Urjit Patel should object DeMon ?

007

4 days ago

Moroni must close RBI or appoint Sambit patra our future FM as RBI governor. Any organisation which creates trouble for PM must not exists, even justice or judiciary is not above democracy and democratically chosen leader.

REPLY

007

In Reply to 007 4 days ago

Apologise for auto correction, Moroni -> Bhagwan Modiji,

Dayananda Kamath

5 days ago

They have failed rather facilitated money laundering and round tripping by tweaking FEMA iam attaching below some of my old posts
Paradise Papers: one more proof of RBI abdicating its responsibility under FEMA.
When ODI transactions are done it should be reported separately to RBI and annual activity report is to be filed. The lac or non monitoring of these transactions by RBI as well as Authorised dealers is to be blamed. Many a times companies never submitted these and not followed up.
They never monitored advance received towards exports till it was brought to their notice by me after the modus operandi in Augusta west land case. Edpms from 2014 has thrown out 88000 defaulting exporters. Other leg Idpms is yet to be implemented which may throw up many more.
The third party import of gold scam in 2000 not investigated nor action taken inspite of having data with them. So it is regulator who are protecting and supporting such culprits and harassing whistleblowers. Even interact with pm portal also is of no use.
It is only political upmanship no logical actions.
Business line DTD 7/11/2015. Npas RBI chief hopes banks wiil be prudent. When RBI itself is not prudent enough how it can expect bankers to be prudent. RBI itself help banks to evergreen npas by tweaking rules every year. And his statement that he is only regulator without executive powers shows we have wrong person at the helm of affairs of banking. May be it is time to demand Padvapsi. If you don't know your powers how you can effectively regulate. By abdicating its duty as regulator it has changed FEMA into foreign exchange mismanagement act. RBI itself is responsible for Bob scam as well as money laundering. Which Banker has guts to disobey an RBI dectate or an RBI nominated board member. But they have not exercised their powers effectively. What executive powers he want to arrest bankers and borrowers. 86branches of banks have allowed unauthorised import of gold as per its own rti reply but has not acted to book the bankers and other agencies. It is bigger gold gate. When management of a bank harassed the internal auditor who reported such irregularities, a complaint to the RBI got unexpected reply not interfering in internal matters of the bank. Sheshan showed what are the powers of election commissioner which were there all along but not exercised. And biggest lie is I act based on the guidelines, may be under congress govt. And now exercising powers to defend those wrong decisions. I really want to see Padvapsi like award vapsi,. Medalvapsi to cleance the system

REPLY

Dayananda Kamath

In Reply to Dayananda Kamath 5 days ago

RBI is seat belt if Govt is driver says Rajan the Indian express dated 7/11/18.
If seat belt instead of functioning as safety measure functions as engine and prevents driving then it should be replaced. The contingency fund is created for contingencies. If it is not utilised during contingency then what is the purpose of creating it.
To day Foreign currency as well as capital market and shortly commodities market also will be at the mercy of FIIs. India may be a bailout facility for these FII s like Enron allowed to use India.
Long back suggested having capital market intervention fund to prevent FII taking advantage and control of foreign currency and capital market operations. In the name of safety of small investors they are virtually driven out of capital markets by SEBI. So a major counter force from capital market has been made redundant and is in the mercy of institutions. They allowed conversion of longterm financial institutions into banks on pretext of cheaper funds. And allowed funding longterm needs by short term funds. Borrower as well as lender resorting to this mismatch of asset liability compounded the banking crisis. And you have to correct it. And instead of doing it more concerned about independence is actually fraud with the public interest.
Hope the authorities realise and take corrective measures instead of squabbling over the independence of authority and driving the economy in two different directions.
I am sharing my 2 year old post to pgportal. Now when Rajans letter to PMO about borrowers is trending this may be more relevant for pointing out failure of RBI.
Grievance Status for registration number : PMOPG/E/2016/0121550
Grievance Concerns To
Name Of Complainant
Dayananda Kamath K
Date of Receipt
14/04/2016
Received By Ministry/Department
Prime Ministers Office
Grievance Description
'We can't bee seen as a paper tiger'- RBI governor writes to employees: business line dtd2/1/2016. Is it not tall claim to be seen as paper tiger, when you are not even paper cat? Will you yourself walk the talk and initiate action against 86 bank branches which allowed third party gold imports as admitted by your office in rti query?and against every importer and nominated agencies, and your own officers who have ignored the same even after bringing it to their notice. When a bank initiates action against the officer who brings out such and other more serious irregularities in discharge of his duty as internal auditor, by misusing their executive powers, and the regulator turns a blind eye and promotes those who are involved it shows the brake down of the system. Will all the authorities including the highest judiciary, pmo, presidents office, who too have been informed have tuned blind eye so far will open their eyes in this new year
Current Status
Case closed
Date of Action
05/11/2018
Remarks
Out of purview.

Dayananda Kamath

In Reply to Dayananda Kamath 5 days ago

In 44 years India lost Rs.17 trillion to scams in exports. And 95% of this amount in last ten years. Hindustan Times DTD 2/11/2016. The STI set up by supreme court should look into the role of RBI in facilitating this through various liberalisation moves which only facilitated round tripping and money laundering. Even many of these issues brought to their notice during last 10 years have been ignored by them and even finance ministry, PMO, and presidents office. The FEMA implementation by RBI since 2005 has been only facilitating these moves and authorised dealers are misusing the powers given and RBi is sleeping. The non monitoring export failed where advance remittance is received since the days of FERA is the failure of RBI. The monitoring has started only after I wrote to the governor about this fact on reading about modus operandi in Augusta Westland scam to round Tripp the commission. That too is inadequate. RBI has not acted on Gold import scam in 2000 even though they have data and even after my RTI quirky. This shows the entire govt authorities are lined up to create and facilitate black money. They can also verify GIFT remittances under LRST and my various posts.

Lalit Mulay

6 days ago

I am not at all financial expert but I see this more of a ego issue between RBI & GOI. Mr.Acharya never attended the last meeting between GOI & RBI which happens in regular intervals to check the current status of economy . Govt. Had asked for Rs.60k crore as a dividend amount from RBI it gave only 30k crore . This effects govt. Various schemes it has declared. Due to PCA ( Prompt Corrective action) where it is not allowing PSU banks to lend money due to strict rules regarding it's NPA . So big amount of around 2 lakh crore is lying idle with psu banks . GOI has asked RBI to relax some rules a bit so that these banks can lend & help to resolve liquidity issue currently facing in the market. RBI has refuse to do so . One side it's not giving GOI any surplus dividend & other side stopped PSU banks from lending They have trapped GOI badly . In 2008-9 at the time of serious crisis RBI made a special SPV & pumped in liquidity through it . It even supported govt. in its Demonitisation . Why RBI is so adamant now dont know ? By choking liquidity it will stopped the growth . There are many intelligent people in RBI & GOI both should sit together , shed their egoes & solve this issue on top priority.

REPLY

Amit Kumar

In Reply to Lalit Mulay 6 days ago

Bhakts would have called into question the nationalism of the RBI governor had he not been appointed by the Modi govt itself.

Anand Vaidya

6 days ago

Thanks for highlighting the many failures (& obduracy) of RBI folks in the last 4 paragraphs.

Can you please clarify why RBI is objecting to tranferring excess cash with it to the gov if it can help reduce deficits? Afterall, it is all nation's wealth after all.

REPLY

Govinda Warrier

In Reply to Anand Vaidya 6 days ago

I'm not trying to comment on your perceptions. But, if comfortable, kindly visit my blog http://www.warriersblog.com to read my article "India's Central Bank: Challenges Galore" published in The Global ANALYST, November 2018 issue, posted at my Blog on November 4, 2018. The article was written during the second week of October 2018.

Siddhartha Singh

In Reply to Anand Vaidya 6 days ago

O my intelligent friend this money is very-very small for such a big country and central bank of any country needs to have some money reserve for Economic crisis (already money existing in RBI's reserve is very low) giving 1 third of the reserve will be like giving 22 years saving to serve Ambanis. What will India do if it has to face economic crisis...? Hindu-Muslim theek hai.. dange karake 2-4 ko maarna theek hai lekin is se poore 1.25 arab population khatre me pad jaayegi... Urjit patel BJP ka hi banda tha lekin wo bhi himmat haar gaya bechara...

Shrik S

6 days ago

to a layman it seems that the govt. takes pride in appointing Indians who are at covetous positions abroad to handle indian economic policies but at the same time, keeping the british tradition intact of having control in the hands of bureaucrats and politicians the govt has still not got the right mindset in place to ensure that india is governed by indian standards (which itself is an oxymoron) than by standards set by some foreign policy body that wants to govern the world economy to favor a few top bosses. the RBI Governer and Dy Governer are but pawns. those personalities which come with independent thinking and expect an open work environment won't be able to work with such remote controlled governance. unfortunately Indians are literally, and in reality immune to the way the governance is working across the board and only a few are left who want things to be improved. Once they are also gone, the later current generations are left without a moral compass, so you can imagine the situation that is going to befall the kids of today when they come of age in the next 10 yrs and move into their futures into the 2050s-60s. The situation expected then, is very gloomy and waiting for a miracle to happen to correct the state of this nation, and the world in general. Anyway, at the philosophical level, in Kaliyuga, things are bound to be bad, till the proverbial 'Pralay' comes to reset and hardboot the system - afresh.

Govinda Warrier

6 days ago

If Moneylife perceptions are based on hard facts and not hearsay, one need not worry too much about a change of guard at Mint Road. Unlike some of the Governors and their deputies earlier, Urjit Patel and his team may not become jobless, if they walk out of RBI. The Section 7 threat has no substance. As it stands just now, GOI can use Section 7 of RBI Act only when RBI Governor needs a direction to handle a recalcitrant central board. Such a situation doesn't exist today. It's open for GOI to amend Section 7 to suit whims. The catch is, even that will need RBI's support!

Suketu Shah

6 days ago

The BSE sensex shd crash 2000 points when this happens on 19 Nov.All honest people being booted out.Which honest government executive has lost his mind to work when their bosses are dishonest with such examples.

Gopalakrishnan T V

6 days ago

This will be a major set back for the Government and this will prove to be very costly to the Government. If one were to go by the performance of the Government and RBI one can easily conclude that RBI has been doing an excellent job with all limitations it faces because of lack of independence and too much of interference both from politicians and bureaucrats. But for RBIs professionalism the economy in general and financial system would have been in a total mess by now is what needs to be appreciated by those who have no political bias and who care more more public interest. It is high time the intelligentia of this country analyse as to who delivers more in public interest between the Government and RBI with all their powers populistic and professional approach. The fact remains that RBI is managed by Economists and non I AS professionals with commitment to do be of real service to people where as the Government has the support of bureaucrats whose objective is always to win the next election by hook or crook and remain in power . The financial system has gone weak because of planned loot by borrowers with the active involvement of politicians and bureaucrats keeping the RBI under check by all means. The institutions are being made weak and non performers by the Government and this is what needs to be realised.

REPLY

Anand Vaidya

In Reply to Gopalakrishnan T V 6 days ago

Please read the last 4 paragraphs of the article. RBI is just another Babudom enforcing policies not suited to our situation and moving an inch on consumer protection. I'm sure a person of eminence such as Prof R Vaidyanathan will agree

Govinda Warrier

In Reply to Gopalakrishnan T V 6 days ago

Apt observations

Dharamveer

In Reply to Gopalakrishnan T V 6 days ago

Truly said. But unfortunately masses do not understand the real picture. They are driven by adventurist Govt.

Ramesh Bajaj

7 days ago

Sad state of affairs.

Harish

7 days ago

Looks like RBI needs to be more public-friendly .

SuchindranathAiyerS

7 days ago

If India had a Central Bank since 1935 instead of a Government Toady run by Babus for Netas, white, brown or coconuts. India would not have galloping inflation and burgeoning deficit since 1947

Is the RBI trying to tinker with the raison de etre of the Republic of India and interfere with the right of every Neta-Babu-Cop-Milard-Crony Kleptocrat to apply the resources of the Nation to personal pomp, pelf, pleasure and perpetuation? Who appointed the RBI as the class monitor? Some idiot white man like Hilton or Young? That was before 1947 Aye! And what on earth will provide employment to all the artisans of the printers' art? If rendered redundant they might start competing with China and Pakistan as bespoke printers of fine Indian currency and establish, yet again, that un cronied private sector "makes" in India what Bharath Sarkar ki Sampathi dare not.
In India, the Judiciary are the unaccountable representatives of the Burden Carrying White Man steeped in their Anglican-Masonic ignorance, imbecility and contumacy. Insofar as they permit, the Executive does as it pleases to rape loot and plunder the citizens regardless of ANY institution, tradition or humanity; equity and balance having been set aside with social engineering by both the Constitution and Courts. The RBI is, at best, a crier in the woods dependent on the executive for pay roll enhancements, perquisites, and a Governor, oblivious to its duties or its role (read “Central Banking” by M. H. DeKock) as such things as audit and supervision of Banks or attempting Open Market Operations and Bank Rates to control inflation might interfere with Government’s “Command Economy” established to enrich and prosper the chosen and preferred,
India's Central Bank is not really a Central Bank. It is a Neta-Babu sinecure. It has been since inception when it was carved out of the Imperial Bank of India in 1935 on the basis of the Hilton Young Currency Commission and the Radcliffe Committee Report. It is merely an instrument of State Policy with no autonomy whatsoever. The old Imperial Bank of India (amalgamated from the Bank of Bengal 1806, Bank of Bombay 1840 and Bank of Madras 1843 in 1921) and its successor, the State Bank of India (1955) had far greater autonomy than the RBI until Indira Gandhi amended the State Bank of India Act to sack Chairman R. K. Talwar in 1975 (her fascist rule during "emergency") for not enthusiastically aiding and abetting her plunder of the financial system for her minions, cronies, party and cohorts. (Sanjay Gandhi and Janardhan Poojari spear headed the heist).
The proof is in the pudding. It has always been run by Babus like Manmohan Singh (IAS) and H.V.R.Iyengar (ICS) who have been trained and groomed to brown nose the ruling clique for their personal pelf, pleasure, pomp and suitable "pay commissions". If the RBI had been a real Central Bank, India would neither have the sort of run away inflation due to Government profligacy and corruption over the last sixty years, nor the scale of Bad Loans ("Non Performing" or "Stressed" Assets - ASSETS?)
This might be sacrilege if not down right seditious. In an India where "deficit finance" is an economic intervention, "profligacy" is a Government "Budget" and economic growth is half of the Central Banker's objectives, and where casteism, gender discrimination and communalism are enshrined in the Constitution and laws as apposite measures for entitlement to privileges, tax exemptions, opportunities and to expand backwardness as the snake charmers of modern India; where corruption and inflation are the only secular forces!

REPLY

Anand Vaidya

In Reply to SuchindranathAiyerS 6 days ago

Very valid points. Amazed at your command over English. Best Regards, Sir

Mohan b Rao

In Reply to SuchindranathAiyerS 7 days ago

Dr Manmohan Singh is not from IAS. He is also an exception having been appointed from outside. of the Babudom.

Suketu Shah

7 days ago

An unheathy Finance minister makes others around him unhealthy as well.

Banks Sharing Financial Data with US Agencies through Microsoft 365 Cloud: Report
Several banks in India, which are using Microsoft Office 365 cloud-based email services are sharing financial data of customers with US agencies, says a report.
 
In the report, DNA Money says this was pointed out by Reserve Bank of India (RBI) in its risk assessment report (RAR) and the central bank had asked banks in the country to explain financial data sharing with authorities abroad. 
 
"According to the document the banks were aware of the issue because they had purchased and migrated to Microsoft’s cloud-based email service – Office 365. All the mailboxes had been migrated to office 365 Microsoft cloud environment. It was gathered from the Microsoft transparency hub that Microsoft is bound to share customers’ data under US Foreign Intelligence Surveillance Act (FISA) and US national security letters as and when required by the US authorities,” DNA Money says quoting the RBI report.
 
Microsoft has disclosed information at least on 3,036 occasions and received more than 4,000 government requests or legal demand requests for Indian customers in the US, the report says.
 
Microsoft, talking about cloud in financial services in India, says, "From a regulatory perspective, cloud is permitted. The regulatory framework in India permits the use of cloud services, including public cloud services. Banks are required to report to the RBI if the scale and nature of the activity outsourced is significant and/ or if extensive data sharing is involved across geographic locations as part of outsourcing and where data pertaining to Indian operations are stored or processed abroad."
 
"Transfers of data outside of India are subject to specific requirements. For public sector banks, the Central Government has issued specific legislation requiring them to seek and obtain permission before transferring public records outside of India," Microsoft added.
 
Microsoft, on its cloud-specific page also talks about success stories of State Bank of India, Yes Bank, Jamia Cooperative Bank Ltd and Kotak Mahindra Bank. Among these lenders, SBI uses Office 365, the cloud-powered productivity solution from Microsoft. "This is one of the largest deployments of Office 365 in India, spanning SBI’s countrywide network of 23,423 branches, enabling 263,000 employees and servicing more than 500 million customer accounts," Microsoft added.
 
Responding to a query on sharing financial data of its customers with authorities abroad, SBI told DNA Money that during 2016 and 2017 they have received no request from US intelligence agencies regarding the customer data. “In 2016 and 2017, Microsoft has advised that they received zero demands from the US law enforcement for commercial enterprise content (50+ seats) located outside the US. In the first half of 2018, the latest time period for which Microsoft has data available, there was one demand from the US government for content data of a commercial enterprise located outside of the US and Microsoft notified the customer, which is not SBI,” the report says quoting a spokesperson from SBI.
 
While transferring data abroad, financial institutions in India are required to practise certain safeguards and measures, including reporting to RBI where applicable, enhanced due diligence and monitoring requirements, maintenance of original records within India and excluding the jurisdiction of foreign courts.
 
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Govt Vs. RBI: Why Section 7 of the RBI Act is Deemed 'Emergency' in Banking
A faceoff between the government and the Reserve Bank of India (RBI) has reportedly escalated to the point that it may lead to the resignation of RBI Governor. The breaking point was apparently over the government’s plan to invoke Section 7 of the RBI Act for the first time. What exactly is the section about and how does it undermine the RBI’s independence?  
 
Section 7 of the RBI act essentially empowers the government to issues directions to the central bank in public interest. However, it has never been invoked. Specifically it says…
 
7. Management.
(1) The Central Government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest. 
(2) Subject to any such directions, the general superintendence and direction 
of the affairs and business of the Bank shall be entrusted to a Central Board 
of Directors which may exercise all powers and do all acts and things which may be exercised or done by the Bank. 
[(3) Save as otherwise provided in regulations made by the Central Board, the Governor and in his absence the Deputy Governor nominated by him in this behalf, shall also have powers of general superintendence and direction of the affairs and the business of the Bank, and may exercise all powers and do all acts and things which may be exercised or done by the Bank.]
 
The main emphasis on this section is on 'public interest' and it means that the government could issue specific directions or even give control of the central bank to the Central Board of Directors. This is important, because the government’s recent nominee on RBI board, S Gurumurthy (a journalist and chartered accountant) has apparently raised questions about the propriety of RBI deputy governor Dr Viral Acharya speaking out about the need to protect RBI’s independence. 
 
 
He said, "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 international investors, and longer life spans." 
 
The statement was significant in the growing differences where the government and RBI sparred on this in Financial Stability and Development Council meeting as well," says a report from Livemint
 
Dr Acharya also reiterated the RBI's opposition to idea of a separate payment's regulator for oversee payment and settlement systems. "A final issue is one of regulatory scope, the most recent case in point being the recommendation to bypass the central bank's powers over payment and settlement systems by appointing a separate payments regulator," he said.
 
Earlier this month, the RBI had published a dissent note against the recommendation to appoint a separate payments regulator.
 
Finance minister Arun Jaitley, apparently miffed over the comments from Dr Acharya, raised the issue of growing non-performing assets (NPAs), saying the Reserve Bank looked the other way when banks lent indiscriminately during 2008-14 to keep the economy humming.
 
There have also been serious differences between the ministry and the RBI on three other issues – the government wants RBI to reduce the stringency of the prompt corrective action (PCA) applicable to public sector banks (PSBs), release more liquidity in the system to help finance companies and help increase the flow of funds to small-scale units. 
 
After facing criticism for invoking a hitherto unused Section to issue instructions to the RBI, the government on Wednesday seemed ready to back off. It said autonomy of RBI within the framework of RBI Act is essential and accepted governance requirement. 
 
"Both the Government and the Central Bank, in their functioning, have to be guided by public interest and the requirements of the Indian economy. For the purpose, extensive consultations on several issues take place between the Government and the RBI from time to time. This is equally true of all other regulators. Government of India has never made public the subject matter of those consultations. Only the final decisions taken are communicated. The Government, through these consultations, places its assessment on issues and suggests possible solutions. The Government will continue to do so," says a statement issued by the finance ministry. There is no official comment from RBI.
 
However, former finance minister P Chidambaram jumped into the fray with a series of tweets in which he alleged that the government was ‘desperate’ and ‘hiding facts about the economy’.  He tweeted: “We did not invoke Section 7 in 1991 or 1997 or 2008 or 2013. What is the need to invoke the provision now?”
 
Interestingly, there seems to be some confusion on whether or not the government has already issued directions to the RBI. While some publications say that three letters have been sent to the RBI under Section 7 of the RBI Act, others insist that there are no specific directions as yet. 
 
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COMMENTS

B. KRISHNAN

2 weeks ago

In all fairness to the ruling government, RBI should get off the high pedestal and co-operate with the govt moves to ease liquidity. Choking liquidity is the RBI's "go to" option for checking inflation. A bit of inflation will not hurt the economy. On the contrary no growth will have serious repercussions in employment generation. After all the Govt is answerable to the people who elected it. I think we should do away with these "imported" governors and appoint our own desi economists to run our financial institutions. These foreign educated bureaucrats are only interested in their pay and retirement benefits, and do not have their heart in the job.

Balraj Amaravadi

2 weeks ago

Are there any guidelines or criteria when this 'section 7' can be invoked? If this section 7 or other section(s) or any any other power(s) should not be invoked, then why to have it? In what way, if a particular section was previously invoked or not helps the current situation( typically each situation is different and independent of each other)? I am novice and trying to understand.

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