RBI Governor Urjit Patel may consider resigning after rift with government

Arun Jaitley

Arun Jaitley

"It is hard to believe that the RBI governor will resign because it is unprecedented and would look quite irresponsible and (an) immature step", said a senior trader at a foreign bank.

The statement from finance ministry came after media reports suggested that tensions between the central bank and the government worsened after Tuesday's Financial Stability and Development Council (FSDC) meeting. Sources said after the consultation, RBI has to take directions from the government in "Public interest". Sentiments are already weak in the market.

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. The Economic Affairs Secretary on Wednesday, however, refused to comment anything with respect to it. 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.

"The autonomy for the Central Bank, within the framework of the RBI Act, is an essential and accepted governance requirement".

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According to Livemint, the government is unlikely to invoke Section 7 of the Reserve Bank of India Act though it is using it as a threat to get the central bank to the negotiating table on a host of issues, including the more recent liquidity crisis that has impacted non-banking finance companies. The statement issued by the union said, the hiatus has widened now and the deputy governor has spoken more "in disgust and despondency" due to continuous nibbling by the government and the finance ministry. For the objective, extensive consultations on several issues take place between the government and the RBI from time to time. These letters were on the government's desire for power sector non-performing assets to be reclassified, the issue of the RBI giving dividends to the Centre, and the government's desire for the Prompt Corrective Action norms applicable for certain bank be eased so as to increase lending for the MSME sector, respectively.

In light of the very public row between the Modi govt and RBI over the latter's NPA rules, there's been talk that the govt could invoke Section 7 of RBI Act. What is the need to invoke the provision now?

"The government never makes public the subject matter of those consultations. It shows that the government is hiding facts about the economy and is desperate", he said in a tweet. The speech was taken as a symptom of the fight between the government and the RBI. "The Government will continue to do so", it further added.

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