Govt Sends Letters to RBI Invoking Section 7 of RBI Act

Andrew Cummings
October 31, 2018

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.

A long-simmering feud came to a head last week after scathing remarks against the Centre from RBI Deputy Governor Viral Acharya. (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. During the hearing, the government had remained silent on whether it wants to invoke Section 7 of the RBI Act to issue directions to the regulator or not.

According to The Economic Times however, Section 7 of the Reserve Bank of India Act may already have been invoked and could be the reason between a rift that has become increasingly public in recent days. 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.

It added that the government holds extensive consultations with the RBI from time to time, during which is places its assessment on issues and suggests possible solutions, which is not disclosed to the public until a final decision has been taken. 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 of extensive consultations on several issues take place between the government and the RBI from time to time". Delivering the AD Shroff memorial lecture on Saturday, Acharya said governments that did not respect their central banks' independence would sooner or later incur the wrath of financial markets. Arguing against the Centre's proposal, the RBI had said, "The digital payments have made good and steady progress".

Reserve Bank of India Governor Urjit Patel may consider resigning from his post given a breakdown in relations with the government, TV channels reported on Wednesday, sparking a sell-off in the rupee and bonds.

While Finance Minister Arun Jaitley met Patel on Tuesday at a scheduled meeting, there was no discussion about the rift, according to an official who asked not to be identified citing rules. The government believes that easing restrictions will boost lending and increase growth.

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

Another government official told Reuters that it was vital that what happened between the government and RBI was kept confidential.

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