Sources in the ministry of finance told Firstpost that Section 7 of the RBI Act has not been invoked. However, two letters were sent to RBI last month in which “Section 7 was quoted”, highlighting the existence of powers under the Act that allows the government to issue directions to the central bank on “matters of public interest”.
Section 7 of RBI Act has not been invoked
Reserve Bank of India (RBI) governor Urjit Patel may consider stepping down from the post following Finance Minister Arun Jaitley’s scathing criticism of the central bank’s “lending spree”, CNBC-TV18 quoted sources as saying on Wednesday.
“RBI governor may even consider resigning. All options on the table,” the report quoted a source familiar with the matter as saying. It quoted another source as saying that there is “irreversible breakdown between RBI governor and the government”.
The rift between India’s central bank and the government has widened and could lead to the Reserve Bank of India (RBI) governor considering resignation, CNBC TV18 reported on Wednesday, citing sources.
There has been an irreversible breakdown between the RBI Governor Urjit Patel and the government, the media said, adding that all options were on the table.
The RBI was not immediately available for comment.
Former Union Minister P Chidambaram took to Twitter earlier today saying there could be more bad news today.
If, as reported, Government has invoked Section 7 of the RBI Act and issued unprecedented directions’ to the RBI, I am afraid there will be more bad news today
P. Chidambaram (@PChidambaram_IN) October 31, 2018
Finance Minister Arun Jaitley on Tuesday accused the RBI for bad loan crisis and said that the central bank was not doing enough. He said that after the 2008 global financial crisis, banks continued lending indiscriminately to keep the economy going “artificially”. Jaitley suggested that the practice of indiscriminate lending ended only in 2014.
On October 26, RBI deputy governor Viral Acharya virtually accusedblamed the government of interfering with the working of the central bank. Acharya said that governments that “do not respect the central bank’s independence will sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution.”
The RBI and the government have not been disagreeing over a number of issues such as the proposal to set up a new agency to regulate payment banks country, the RBI’s lending restrictions on banks and the central bank’s handling of the bad loans.
