RBI special sections invoked, Urijit Patel may resign

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

Over the last month, the Narendra Modi government escalated the current stand-off with the RBI by invoking rarely-used powers available to it under the Section 7 of the RBI Act.

Mumbai: The rupee pared losses against the U.S. dollar on Wednesday after the government said that it respects the Reserve Bank of India's autonomy. Giving control of the Reserve Bank of India to its Board of Directors effectively gives this control to thel government.

Neither denying nor accepting, the Ministry of Finance has issued a statement saying that extensive consultations on several issues take place between the government and the RBI and only final decisions are communicated.

Sources, however, insisted that the government has not taken any action of issuing any specific direction and has only initiated consultations with the central bank on unresolved issues.

The government wants RBI to carve out exemption for power companies under the PCA framework that outlines triggers for declaring a loan account as stressed or NPA, sources said adding the second letter pertained to use of RBI's capital reserves for providing liquidity to the market and a third letter was for relaxing constraints on banks for loans to small and medium enterprises (SMEs). 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.

Sources said Section 7 has two parts - consultation and then issuing a direction to RBI for taking some action in public interest. "It shows that the government is hiding facts about the economy and is desperate", he said in a tweet.

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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 Finance Ministry said that it has never made public the subject matter of consultations with the apex bank.

Following this, the finance minister blamed the RBI for its lending spree between 2008 and 2014 that left banks with huge debts.

Section 7 of the RBI Act, when invoked, allows the government to consult with and give instructions to the RBI governor on issues that it feels are serious and in public interest.

However, another report suggested that the government has initiated a consultative process with the RBI in three areas of concern and while doing so, has mentioned Section 7 without actually invoking it. What is the need to invoke the provision now? "The Government will continue to do so", it further added.

The former finance minister also attacked the government after it issued a statement to clarify things that are going on between itself and the RBI.

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