New Delhi: Amid the ongoing skirmish between the Reserve Bank of India (RBI) and the government, the central’s bank Governor Urjit Patel may consider resigning from his post, media reports suggested on Wednesday. Also Read - Are we Heading Into Recession? India's GDP Growth For 2020-21 to Remain in Negative? Here's What RBI Governor Says
This comes amid the government invoking never-before-used powers under the RBI Act that allow it to issue directions to the central bank governor on matters of public interest. Also Read - No EMI Till August? What About Accumulated Interests? Breaking Down RBI Governor's Latest Announcements
The government is believed to have sent at least three letters to the RBI governor in recent weeks exercising powers under Section 7 of the RBI Act on issues ranging from liquidity for non-bank finance companies, capital requirements for weak banks and lending to small- and medium-sized companies. Also Read - Rajan Says Migrants Need Money For Vegetables, Cooking Oil, Shelter; Food Grains Not Enough
Section 7 of the RBI Act says “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”.
However, the government clarified that it has “nurtured and respected” autonomy of the central bank and has been holding extensive consultations with it on many issues.
However, the statement did not mention about the government citing the never-before-used power of issuing directions under the Act to RBI Governor to seek a resolution to differences with the central bank.
The report sparked a sell-off in the rupee and bonds with the currency falling to 73.99 against the US Dollar from 73.68 on Tuesday and the 10-year benchmark yield rising to 7.87 per cent from its previous close of 7.83 per cent.
“It is difficult to believe that the RBI governor will resign because it is unprecedented and would look quite irresponsible and (an) immature step. But it is quite worrisome to see the government trying to continuously interfere into the RBI’s operations,” Reuters quoted a senior trader at a foreign bank as saying.
Tensions between the RBI and government spilled into the public domain after the RBI Deputy Governor Viral V Acharya stated that undermining the central bank’s independence could be “potentially catastrophic”. This was seen as a veiled reference to RBI pushing back hard against government pressure to relax its policies and reduce its powers.
The government of the day, he said, was pushing banks to lend which resulted in credit growth in a year shooting up to 31 per cent from the normal average of 14 per cent.
In a push back, Finance Minister Arun Jaitley on Tuesday criticised the central bank for failing to check indiscriminate lending during 2008 and 2014 that has led to the present bad loan or NPA crisis in the banking industry.
“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.
“The central bank looked the other way, there was indiscriminate lending,” he said.