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RBI special sections invoked, Urijit Patel may resign

31 October, 2018, 14:34 | Author: Lawrence Cooper
  • Arun Jaitley

The following development surfaced a few days after the RBI deputy governor Viral Acharya, during a public address, said that the interference by the Centre in the working of the RBI could result in disastrous consequences.

Efforts are on to contain the fight before it turns macabre as speculations are rife that RBI governor Urjit Patel, an NDA pick, may resign.

The government in a released statement said, "Autonomy for the Central Bank, within the framework of the RBI Act, is an essential and accepted governance requirement".

A report by news agency Reuters said that Urjit Patel may consider resigning from his post given a breakdown in relations with the government headed by Prime Minister Narendra Modi. Sentiments are already weak in the market.

Following the public rift, the government has reportedly invoked Section 7 of the RBI Act, which has never been used in independent India. The Economic Affairs Secretary on Wednesday, however, refused to comment anything with respect to it.

In open letter, All India Reserve Bank Employees Association says govt must desist from nibbling at central bank's autonomy and let it do its job in an unfettered way, else it will incur the wrath of financial markets.

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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 is ambiguous and does not fully clarify the issues at hand", said A. Prasanna, chief economist at ICICI Securities Primary Dealership in Mumbai.

Relaxation of lending norms: Non-official directors of the central banking institution have been demanding a slackening "MSME forbearance" (micro, small and medium enterprises). For the goal, extensive consultations on several issues take place between the government and the RBI from time to time.

NBFCs and Housing Finance Companies (HFCs) are suffering from asset-liability mismatches (ALM), CII noted adding that in a worst-case scenario, this could lead to a run on mutual funds and defaults in the NBFC sector.

The statement further stated that, "Government of India has never made public the subject matter of those consultations".

But it was unclear if it had used powers for the first time under the RBI Act to give the bank instructions. Only final decisions are communicated. What is the need to invoke the provision now? "The government will continue to do so". "It shows that government is hiding facts about the economy and is desperate (sic)", he said in a series of tweets. His remark only inflamed the ongoing row between the RBI and the government.

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