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

Urjit Patel governor of the Reserve Bank of India at the spring meetings of the International Monetary Fund and World Bank in Washington D.C

Urjit Patel governor of the Reserve Bank of India at the spring meetings of the International Monetary Fund and World Bank in Washington D.C

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.

In such a situation, the law adds, the general supervision and "direction of affairs and business of the bank will 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".

It added that the government has "never made public the subject matter of those consultations".

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.

RBI deputy governor Viral Acharya, pressing for independence of the central bank, said that lack of autonomy prevents it from regulating public sector lenders, the Times of India reported. RBI and the government have reportedly been at the loggerheads over several issues including the government demanding ease in lending rules for at least 11 banks under prompt corrective action (PCA) framework, while the regulator thinks otherwise.

While speculation abounded on Wednesday about whether the government had invoked Section 7 of the RBI Act, which would give the government the ability to direct the central bank's actions, the Finance Ministry remained studiously silent on the issue.

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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.

From the tone of Acharya's speech, it appeared that the RBI is under tremendous pressure to hand over its surpluses squirrelled away over years and hence its decision to take the issue to the people.

Senior government officials said the RBI's guidelines on NPAs were not only stringent but "too harsh", and could have serious ramifications on industries such as MSME and power. The government, through these consultations, places its assessment on issues and suggests possible solutions.

In a press statement, All India Reserve Bank's Employees Association (AIRBEA) said that "undermining the country's central bank is a recipe for disaster and the government must desist". "The government will continue to do so", the ministry, concluding statement said. Section 7 allows the govt to override RBI's autonomy.

The letter said, "Even the RBI board is being sought to be stuffed in a particular direction which would prompt the discerning people to look askance, and make it hard for RBI to frame policies".

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