Government Initiates Consultations With RBI Under Rare Provision


The government has invoked never-before-used powers under the RBI Act that allow it to issue directions to the central bank governor on matters of public interest, the Economic Times newspaper reported.

Sources said it is a pre-scheduled and routine meeting of the central board of the RBI.

It also discussed the issues and challenges of Crypto Assets/Currency and was briefed about the deliberations in the High-level Committee chaired by the Secretary (Economic Affairs) to devise an appropriate legal framework to ban use of private crypto currencies in India and encouraging the use of Distributed Ledger Technology, as announced in the Budget 2018-19, the statement said.

Breaking silence on the current tussle between the North Block and the Mint Street, the Finance Ministry on Wednesday made it clear that the autonomy of the central bank, within the framework of the RBI Act, is an essential and accepted governance requirement.

Both the government and RBI, in their functioning, have to be guided by public interest and the requirement of the Indian economy, it said.

Finance ministry and RBI are said to have differed on the central bank's handling of weak public sector banks, tight liquidity in the market and ways of resolving bad loans in the power sector.

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Sources, however, insisted that the government has not taken any action of issuing any specific direction and has only initiated consultations with the central bank on unresolved issues.

Reserve Bank Governor Urjit Patel noted the liquidity problem in NBFCs is not as severe as being projected, but assured the government that it would ensure adequate liquidity in the system, sources said after the meeting.

This would be the first meeting of the board after RBI's Deputy Governor Viral Acharya highlighted the issues concerning the independence of the central bank.

He also said that the previous UP Government did not invoke Section 7 in 1991 or 1997 or 2008 or 2013.

The government, on its part, asked the RBI to prevent spreading of IL&FS crisis to other sectors of the economy, the sources added.

Following the reports, former Finance Minister and senior Congress leader P Chaidambaram tweeted, "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".