Government To Continue Pressing RBI For Relaxing Norms, Funds

Reserve Bank of India Governor Urjit Patel arrives for a news conference at the bank's head office in Mumbai

The existing economic capital framework which governs the central bank's capital requirements, as well as the terms for the transfer of its reserves to the government, is a very "conservative" assessment of risk by the RBI, argued the government.

This would amount to more than a third of the total Rs 9.59 lakh crore reserves of the central bank, to the government, the report said.

He also noted in his address to top industrialists that the Argentine government's meddling in its central bank's affairs in 2010 led to a market revolt and a surge in bond yields.

Last month, RBI Deputy Governor Viral Acharya had said that undermining the central bank's independence would be "potentially catastrophic".

"We don't know whether the board will supersede the RBI in that case", said the source.

It is unclear, though, how the government will seek to exert pressure through the RBI's Central Board as the body is a largely symbolic one, which has never had a direct say in the bank's directives and policies, according to two additional sources with knowledge of the law under which the central bank operates.

The deputy governor's comment had generated controversy, hinting at the growing rift between the government and the central bank.

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The government has also been pushing for relaxing the new non-performing assets (NPAs) recognition norms selectively. Previous governors too had occasionally pointed out the government's overreach, when it came to the functionality of RBI.

Congress president Rahul Gandhi on Tuesday alleged Prime Minister Narendra Modi was trying to "fix the mess his genius economic theories have created" by seeking Rs 3.6 lakh crore from the RBI.

RBI Governor Urjit Patel might resign from his position on November 19 due to health issues and the ongoing spat with the government, reports suggested.

A Finance Ministry spokesman declined to comment for this story.

Earlier, Moneylife had reported that as the government and central bank are engaged in a power tussle, there is a chance that Patel could step down.

Reportedly, it was only in the last few weeks that the government has threatened to invoke its most lethal weapon- Section 7 of the RBI Act.

Also emphasising on the important role of the RBI board in managing the standoff between the bank and the government, he said: "The role of the RBI board is not operational but to coach". So, one may ask, is this really in the "public interest"?

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