RBI autonomy essential, says finance ministry amid rift with central bank

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Meanwhile, it also emerged that the government had invoked Section 7 of the RBI Act at least invoked 3 times.

Last week, RBI deputy governor Viral Acharya lashed out at the Central government, saying it was trying to undermine the independence of the central bank. Another report in the Times of India said the government had mentioned the rule to the RBI in consultations, without invoking it.

Prompt corrective action (PCA): 11 public and 1 private bank in the country have been placed under what is called a PCA framework - rules the RBI puts in place for weaker banks - which bars lending by these banks, among other things, until they strengthen their capital base. 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. Regardless of the speculations in media, there are reasons to believe that government is very unlikely to go for the extreme step of invoking Section 7, which would add to its headaches in the financial markets.

The Finance Ministry on Wednesday issued a statement that said the central bank's autonomy is "an essential and accepted governance requirement". Arguing against the Centre's proposal, the RBI had said, "The digital payments have made good and steady progress".

According to the RBI, if repayment is delayed by even one day, the account should be seen as stressed and the banks would be required to initiate resolution. 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.

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Government officials believe that RBI Governor Urjit Patel has some responsibility for the controversy, and he can not expect an extension of his current three-year term - which ends next September - "as his right", one of the officials added.

Acharya's speech is, as a result, remarkable in how well it lays out exactly what seems to be happening between the Centre and the RBI right now, especially with talk of Patel considering what Redrado did: resignation.

Patel had come under increasing criticism from the banking industry as well as the government over his handling of non-performing assets (NPAs) and his stance on the autonomy of the RBI.

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. 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.