Amid reports of Urjit Patel resignation, FinMin says RBI’s autonomy ‘nurtured and respected’

By: | Updated: October 31, 2018 1:34 PM

As the rift widens between the government and the Reserve Bank of India (RBI), the Finance Ministry today said it has 'nurtured and respected' the regulator's autonomy, without mentioning if it has invoked Section 7 of the RBI Act amid media speculation

The Finance Ministry today said it has 'nurtured and respected' the autonomy of the RBIThe Finance Ministry today said it has ‘nurtured and respected’ the autonomy of the RBI

As the rift widens between the government and the Reserve Bank of India (RBI), the Finance Ministry today said it has ‘nurtured and respected’ the regulator’s autonomy, without mentioning if it has invoked Section 7 of the RBI Act amid media speculation, and reports that Governor Urjit Patel may resign.

In a sign of mellowing its stand, the finance ministry said in a statement on Wednesday that the central bank and the government have to work together in the “public interest”. Several media reports said that the government has invoked section 7 of the RBI Act, which gives it special powers to direct the regulator.

“For the purpose, extensive consultations on several issues take place between the government and the RBI from time to time. This is equally true for all other regulators,” the finance ministry said in a statement.

However, the Finance Ministry statement did not make any reference to the use of Section 7. Stock markets recorded a mild surged immediately upon the release of the statement, with the BSE Sensex rising 150 points intra-day.

“The government, through these consultations, places its assessment on issues and suggests possible solutions. The government will continue to do so,” it added. The conflict between the RBI and centre deepened over the Prompt Corrective Action (PCA) norms, which put restrictions on weak banks. The RBI wants to continue with restrictions, while the government want it to be relaxed so that these banks can continue to lend as NBFCs face liquidity pressure.

The conflict hit headlines following the strongly-worded speech by deputy governor Viral Acharya, in which he had said that undermining a central bank’s independence could be “potentially catastrophic”.

Earlier when the FinMin and the RBI were at loggerheads over the new norms of NPA recognition and resolution, putting many power sector companies in red, the Allahabad High Court had observed that the government may invoke section 7 of the RBI Act. The matter is currently in the Supreme Court.

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