Rahuram Rajan defends RBI deputy governor against Modi government's interference

Marco Green
November 7, 2018

In recent weeks, the rift between the RBI and the government has been widening over various issues.

Last week, continuing with the institutional push against government wishes, RBI deputy governor NS Vishwanathan dismissed calls for lowering capital adequacy norms for the lenders and match with global levels. Sources have confirmed to The Indian Express that the RBI views this attempt by the government to dip into its reserves can adversely impact macro-economic stability.

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.

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. "Protect the nation", he tweeted and also posted the media report.

The government wants some of these strictures to be eased to kick start lending and support growth, the sources said. The framework was reportedly adopted in July 2017 "unilaterally" by the banking regulator and the government nominees on the board were absent from the meeting, said the Finance Ministry. The last meeting of the board was held in October. "Patel and his team must recognise the period of an invisible RBI board is over", one of the New Delhi-based sources said, noting that the RBI will sooner or later have to fall in line.

After a civil war broke out in the CBI, the cage has reached another autonomous institution, RBI, wherein the standoff between the government and the central bank has traversed the headlines of the newspapers.

On November 6, former RBI governor Raghuram Rajan, in an interview with CNBC TV18, while defending the call for RBI's greater autonomy said that the nation is ultimately going to benefit from a robust and independent RBI.

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 risks of undermining the central bank's independence are potentially catastrophic", said Acharya, adding that rash moves could trigger a "crisis of confidence in capital markets that are tapped by governments and others in the economy".

Other reports by Click Lancashire

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