Government says consultations on with RBI, remains mum on Section 7

Government says consultations on with RBI, remains mum on Section 7

Government says consultations on with RBI, remains mum on Section 7

Also, the government has invoked never-before-used powers under the RBI Act (Section 7) allowing it to issue directions to the central bank governor on matters of public interest, the Economic Times reported on Wednesday. The deputy governor even helpfully used a cricketing analogy to simplify the reasons that central banks and governments will always have different outlooks. At this crucial juncture, when markets have started recovering after NBFC turmoil and supportive global cues, the resignation of the RBI Governor Urjit Patel will rattle investor sentiment, they say.

The government stressed on Wednesday that the autonomy of the Reserve Bank of India (RBI) is "essential" as it sought to calm investors anxious about a growing public quarrel with the central bank.

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. Delivering the AD Shroff Memorial Lecture, Acharya had called for greater powers for RBI to regulate public sector banks as it seeks to clean up the banking system.

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

It further claimed that the government has invoked never used before Section 7 of the RBI act. These letters were on the government's desire for power sector non-performing assets to be reclassified, the issue of the RBI giving dividends to the Centre, and the government's desire for the Prompt Corrective Action norms applicable for certain bank be eased so as to increase lending for the MSME sector, respectively.

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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" on Wednesday.

"Only the final decisions taken are communicated".

"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", Chidambaram added. What is the need to invoke the provision now?

"The markets have taken these developments in their stride as there is an inherent belief that the central bank is independent and will continue with its rules-based mandate, whilst the government focuses on reforms and looks to buoy growth, drawn also by the approaching elections. It shows that government is hiding facts about the economy and is desperate (sic)", he said in a series of tweets. The RBI declined to comment.

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