Published: Wed, October 31, 2018
Markets | By Otis Pena

Government Invokes Never-Before-Used Powers To Direct RBI Governor

Government Invokes Never-Before-Used Powers To Direct RBI Governor

"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", Section 7 (1) of the RBI Act reads. Senior officials said the government fears the rift could tarnish the country's image among investors. "It shows that the government is hiding facts about the economy and is desperate", Chidambaram wrote on micro blogging site Twitter. According to ET Now, Patel had told government not to "raid RBI reserves", as government was keen on the transfer of reserves to fill up its fiscal deficit amid NPA stress.

The RBI also opposed the draft of the new payments and settlement law that proposed an independent payments regulator, clearly limiting the central bank's say in the matter.

Days after deputy governor Viral Acharya raised concerns over the central bank's autonomy, the Reserve Bank employees association on Monday came out in support of the views, saying "undermining the central bank is a recipe for disaster" and government to stop nibbling at its autonomy.

On Tuesday, Finance Minister Arun Jaitley said the central bank had "looked the other way" when banks were lending "indiscriminately" between 2008 and 2014.

More recently, the government has been pushing for relaxation in the prompt corrective action framework that saw the RBI impose lending restrictions on 11 state-run banks, arguing that credit flow to the SME sector was being affected. When asked, economic affairs Subhash Chandra Garg said that a high-level committee would decide whether they would go that route to provide relief to stressed power projects. An unidentified official in the Prime Minister's Office told Reuters it was "very unfortunate" that RBI took the matters public. Patel, in a speech countered this, pointing to the lack of regulatory and supervisory powers with the RBI when it comes to state-owned banks. "It might be better if the time-honored practice of the finance minister and the governor of the RBI meeting often in private and talking issues".

Unlike in the past, all four RBI deputy governors attended the FSDC meeting along with Dr. Patel.

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The personal allowance, which is the minimum income someone can earn before paying tax, will rise to £12,500 from £11,850. The cuts were criticised as "tax cuts for the rich" by shadow foreign secretary Emily Thornberry on Monday.

The official in the prime minister's office said Patel could face a tough time when he appears before a parliamentary standing committee on November 12.

Patel and other regulators, including the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority and the Pension Fund Regulatory and Development Authority, met Jaitley and other top finance ministry officials at a meeting of the Financial Stability and Development Council on Tuesday to discuss the liquidity crunch.

The benchmark stock index rose as much as 2.15 percent and the yields on the 10-year benchmark fell to 7.81 percent, compared with 7.88 percent on Friday.

The RBI under Patel has been pushing for more powers to clean up a banking system that's saddled with bad debts.

"When we are facing problems on the external front like high crude oil prices, trade tensions putting pressure on our current account balance, can we afford another domestic crisis?" the third government source said.

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