According to a media report, the government has invoked the never-before-used powers under the RBI Act allowing it to issue directions to the central bank governor on matters of public interest.
Reserve Bank of India Governor Urjit Patel may consider resigning from his post given a breakdown in relations with the government, TV channels reported on Wednesday, sparking a sell-off in the rupee and bonds.
Earlier, finance minister Arun Jaitley had accused the central bank of sleeping on the job for its failure to check indiscriminate lending by public sector banks between 2008 and 2014. It added that the government holds extensive consultations with the RBI from time to time, during which is places its assessment on issues and suggests possible solutions, which is not disclosed to the public until a final decision has been taken.
"We have a fairly fragile financial system, between the public sector banks and non-banking financial companies", said Dhananjay Sinha, head of institutional research at Emkay Global Financial Services.
Mumbai: The rupee pared losses against the USA dollar on Wednesday after the government said that it respects the Reserve Bank of India's autonomy. "This is equally true of all other regulators", the finance ministry stated. "The government will continue to do so", the ministry said. While the Economic Affairs Secretary declined to comment on whether Section 7 had been invoked, the official statement also made no mention of it.
2 girls planned to kill classmates, drink blood
Notices have been sent to the parents/guardians of students at Bartow Middle School informing them of the situation. Afterwards, the girls would leave the body parts at the school's entrance before killing themselves, they said.
On Friday, RBI Deputy Governor Viral Acharya warned that undermining a central bank's independence could be "potentially catastrophic", in an indication that it is pushing back hard against government pressure to relax its policies and reduce its powers ahead of a general election due by next May.
Though differences between the government and RBI have peaked this year over a number of issues, including the central bank's handling of the Nirav Modi crisis and the latter's firm stand on bringing weak banks under prompt corrective action, the latest reason for the escalation is the liquidity crisis being faced by NBFCs. Former Finance Minister Yashwant Sinha tweeted, "If indeed govt has issued directives to the RBI then its governor should resign forthwith".
Reserve Bank of India Deputy Governor Viral Acharya's speech last week was seen by many as a clear indication of the friction between the government and the central bank, which has now properly spilled over into the public domain.
The issue of Section 7 first came up during an Allahabad High Court hearing on a case filed by Independent Power Producers challenging an RBI circular issued on 12 February. Neither the government nor the RBI has signaled any thaw of any of these specific issues yet.