Autonomy of Reserve Bank 'essential', says finance ministry

Indian Ministry of Finance Keeping a Close Watch on Crypto Sector Development

The Reserve Bank of India governor Urjit Patel is considering all options including resigning from his post following an unprecedented attack on the central bank's functioning by Finance Minister Arun Jaitley.

As per the Section 7 of the RBI Act, the Central Government is entitled to give directions to the Central Bank after it consults the RBI Governor.

The government issued the statement to address the perception of growing differences between the finance ministry and the country's central bank. "Even the RBI board is being sought to be stuffed in a particular direction, which would prompt the discerning people to look askance and make it hard for RBI to frame policies", the union said in the letter.

"During 2008-14 after the global economic crisis to keep the economy artificially going, banks were told to open their doors and lend indiscriminately", he said in a speech at a conference attended by heads of USA companies. Martin Redrado, the central banker, made a decision to go because the Argentine political leadership ordered the bank to transfer its reserve into the government's kitty. "I am surprised that at that time, the government looked the other way, the banks looked the other way". It was a regulator of these. "They kept pushing the truth below the carpet", he said. Essentially, they want to ease non-performing asset norms and relax lending norms for MSME companies.

Acharya made a case for granting more independence to the central bank and said that the governments that did not respect their central bank's independence would invite the wrath of financial markets. But the specific warning within it goes beyond any current conditions and applies to any discussion about power struggles between governments and their central banks.

Indian Ministry of Finance Keeping a Close Watch on Crypto Sector Development

Financial markets have not reacted to the rift, but investors and traders are wary, as they want to see policymakers working closely together to stabilise India's fragile banking system and roiled markets.

So far this year, the rupee has declined over 13% against the USA dollar.

Acharya's speech triggered strong reactions from the RBI's employees union, credit analysts and India's media.

In its statement issued Wednesday, the finance ministry said, "The autonomy for the Central Bank, within the framework of the RBI Act, is an essential and accepted governance requirement".

RBI Governor Urjit Patel may not resign as he has called a board meeting on November 19 to discuss the pending issues, which created a rift between the government and the central bank, in the previous meeting held last week. "We appeal to all right-minded people and experts to speak out and persuade the government to amend, and let RBI do its job in an unfettered way as per statutes, mandates, practices", the letter said.

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