RBI governor may resign, reports say; rupee down

Arun Jaitley

Finance Minister Arun Jaitley has, however, blamed the RBI for failing to stop a lending spree between 2008-2014 that left banks with huge bad debts, inflaming a row that recently erupted between the government and the central bank.

The tussle widened further with reports circulating on Wednesday that the governor Urjit Patel has conveyed his displeasure to the government and he is considering all options including to step down, TVchannels reported, citing sources.

According to Livemint, the government is unlikely to invoke Section 7 of the Reserve Bank of India Act though it is using it as a threat to get the central bank to the negotiating table on a host of issues, including the more recent liquidity crisis that has impacted non-banking finance companies. Urjit Patel may consider resigning given a breakdown in relations with the government, sources said on Wednesday.

Far-sighted government leaders may be able to reap benefits of convincing voters about the importance of investing in macro-economic stability; for instance, by claiming credit for the long-term nature of financial sector outcomes attained by allowing the central bank autonomy in decision-making and delivery of its core functions.

Acharya's speech comes after a long-running tug of war between the government and the RBI over whether the central bank should part with some of its Rs 3.6 lakh crore ($48.93 billion) reserves to fund the country's fiscal deficit.

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He added, "We did not invoke Section 7 in 1991 or 1997 or 2008 or 2013". He had warned that undermining RBI's independence could be "potentially catastrophic", indicating the central bank is being pushed to relax its policies and reduce its powers ahead of a general election due by May.

Finance ministry and RBI are said to have differed on the central bank's handling of weak public sector banks, tight liquidity in the market and ways of resolving bad loans in the power sector. What is the need to invoke the provision now? In a statement, the finance ministry said such consultations with RBI or Reserve Bank of India took place from time to time "in public interest"."The government has never made public the subject matter of those consultations". This is equally true of all other regulators.

The government in a released statement said, "Autonomy for the Central Bank, within the framework of the RBI Act, is an essential and accepted governance requirement". The government, through these consultations, places its assessment on issues and suggests possible solutions. "The Government will continue to do so".

"Still it does sound like the finance ministry is trying to dial down the temperature". "We appeal to all right-minded people and experts to speak out and persuade the government to amend, and let RBI do its job in an unfettered way as per statutes, mandates, practices", the letter said.

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