Urjit Patel may resign as Jaitley’s remarks widen RBI-govt rift

31 October, 2018, 14:31 | Author: Corey Lynch
  • Arun Jaitley

Reports add that the Central government has invoked some powers mentioned under the RBI Act in order to issue directions to the RBI Governor Urijit Patel.

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.

In his strongest criticism of RBI yet, Finance Minister Arun Jaitley on Tuesday had hit out at 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. 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. "Despite the pain, the regulators are likely to display tough love in the regulatory space to strengthen the financial system", said Radhika Rao, economist at DBS Bank. "This is equally true of all other regulators".

Public sector banks: Following the Nirav Modi-Punjab National Bank case, the RBI and Centre began pointing fingers at each other.

But it was unclear if it had used powers for the first time under the RBI Act to give the bank instructions.




India's $2.6 trillion economy surpassed France's in 2017 to become the world's sixth largest, and is not far behind that of the United Kingdom, according to World Bank data. These letters were on the government's desire for power sector non-performing assets to be reclassified, the issue of the RBI giving dividends to the Centre, and the government's desire for the Prompt Corrective Action norms applicable for certain bank be eased so as to increase lending for the MSME sector, respectively. Former Finance Minister Yashwant Sinha tweeted, "If indeed govt has issued directives to the RBI then its governor should resign forthwith".

"Government of India has never made public the subject matter of those consultations". What is the need to invoke the provision now?

The Economic Times report said that the Section 7 powers had been invoked on issues ranging from liquidity for non-bank finance companies, to capital requirements for weak banks and lending to small- and medium-sized companies.

Earlier, a letter by the All India Reserve Bank Association had said that the deputy governor, Viral Acharya, spoken more "in disgust and despondency" due to continuous nibbling by the government and the finance ministry. However, simmering tensions came to a head on October 26, when RBI Deputy Governor Viral Acharya, speaking at the A D Shroff Memorial Lecture in Mumbai, made a scathing statement against the government.

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