Autonomy of RBI essential, nurtured by govt: Finance Ministry

Autonomy of RBI essential, nurtured by govt: Finance Ministry

Autonomy of RBI essential, nurtured by govt: Finance Ministry

The government statement comes after reports that it has invoked never-before-used powers under Section 7 of the RBI Act that empowers the government to consult and give instructions to the central bank governor to act on certain issues that the government considers serious and in public interest.

The tiff between the RBI and the government came into limelight after the bank's deputy governor Viral Acharya warned the government last week against interfering in the central bank's functioning.

Finance Minister Arun Jaitley on Tuesday blamed the central bank for failing to stop a lending spree during 2008-2014 that left banks with $150 billion of bad debt.

Clarifying that the government holds "extensive consultations" with the central bank from time to time, the Centre on Wednesday said that it accepts the autonomy of the Reserve Bank of India within the framework of the RBI Act. "Despite the pain, the regulators are likely to display tough love in the regulatory space to strengthen the financial system", said Radhika Rao, economist at DBS Bank.

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.

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"The statement is ambiguous and does not fully clarify the issues at hand", said A. Prasanna, chief economist at ICICI Securities Primary Dealership in Mumbai.

NBFCs and Housing Finance Companies (HFCs) are suffering from asset-liability mismatches (ALM), CII noted adding that in a worst-case scenario, this could lead to a run on mutual funds and defaults in the NBFC sector. In contrast, a central bank plays a test match, trying to win each session but, importantly, also survive it so as to have a chance to win the next session, Acharya had 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.

"The government never makes public the subject matter of those consultations".

The Finance Ministry on Wednesday acknowledged that the autonomy of the Reserve Bank of India (RBI) is an "essential and accepted governance requirement", but it neither confirmed nor denied that it had issued directives to the bank under Section 7 of the RBI Act. "It shows that government is hiding facts about the economy and is desperate (sic)", he said in a series of tweets.

"Only the final decisions taken are communicated. The government will continue to do so", the ministry said. "We appeal to all right-minded people and experts to speak out and persuade the government to amend, and let RBI do its jobs in an unfettered was as per statutes, mandates, practices".

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