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While the regulator's communication collapses on various issues, lobbyists and industry badociations feel that they have hardly Other choice than to contact the government to express their concerns, in light of the widespread perception that Mint Street gives priority to their problems.
Bankers, badysts and former RBI officials, who do not want to be identified, said that this probably aggravated the gap that already separated the government and the RBI, which was already evident in the beginning of the year on some issues, such as that of February 12 circular asking banks to take action if the borrower delays payment, even one day.
Some members of the RBI board met informally Monday to discuss the conflict between the regulator and the government and to propose a compromise, but it remains elusive for the moment, said one person familiar with the file.
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<p> <strong> DIFFICULT DECISIONS BY RBI </strong><br />
<br /> One of the council members, S Gurumurthy, denied in a tweet the disagreements reported at the RBI council meeting last week. "Completely false," said the tweet. "Was present in the council. All the directors testified that on 5 points, there was an agreement on 4 points. On a step. No pressure at all. He responded to information about the differences in credit flows to small and medium-sized enterprises.
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<p> In the past two years, under Governor Urjit Patel, the RBI has made many difficult decisions, ranging from the resolution of bad debts under the Insolvency and Bankruptcy Code to the current lawsuit. lack of payment of one day and even to strict rules. for banks as part of the rapid corrective measures (PCA). Many of these rules have upset the industry.
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<p> In addition, the recent tightening of credit markets following the failure of Infrastructure Leasing & Financial Services (IL & FS) and the sale of NBFC shares prompted the sector to seek relief as the central bank n & # 39; He has not provided to his satisfaction. with the situation said. "The governor refuses to meet people and his deputies are also wary of any interaction," said a treasury official of a bank. "Forget about public interactions, even private communications between the central bank and the government took a hit. This is not healthy for any market. "
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<p> Deputy Governor Viral Acharya said last week that any government intervention in central bank affairs that undermines regulatory autonomy could be "catastrophic" for the economy and that markets would punish such actions. .
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<p> "Governments that do not respect the independence of the central bank will sooner or later face the wrath of the financial markets, fuel the wrath of the economy and mitigate the day they will have undermined an important regulator; their more sophisticated counterparts investing in the independence of the central bank will benefit from lower borrowing costs, international investor love and a longer life, "said Acharya.
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<p> This speech follows government support for a relaxation of the capital requirement rules for state-run banks under the PCA and the US. renewed liquidity for non-bank financial companies that struggled to raise funds after the default of IL & FS.
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<p> <strong> COMMUNICATION FAILURE </strong><br />
<br /> "Communication has been a weak point in the current RBI regime, but that does not mean that the government and its council candidates are unaware of the RBI governor's position" said an observer from the central bank. "At the board meeting, a newly elected member, known for his connections to groups affiliated with the RSS, made some suggestions in a disrespectful tone. This, coupled with continued government pressure to relax CPA standards, provide more liquidity to NBFCs, and not forget to fire a serving board member, have now reached their peak. "
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<p> Previously, relations between the RBI, the financial markets and the industry were dynamic when it was led by Drs Bimal Jalan, YV Reddy, D Subbarao and Raghuram Rajan. The relationship appears to have deteriorated after some members of the RBI's board of directors raised some issues at the board meeting last week, which is unprecedented since most board meetings RBI administration follow an ordinary agenda and do not discuss important issues such as monetary policy or bank rules and regulations as these are decided by the respective departments.
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<p> The government of Nachiket Mor, former executive director of ICICI Bank, for the second term on the central board of the RBI, was shortened by a four-year term only in September. The termination of the contract due to its badociation with a non-governmental organization funded abroad had been preceded by the appointment of Swadeshi Jagran Manch (SJM) mentor, S Gurumurthy, to the RBI board of directors. .
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<p> "Mor was an expert in universal banking and had valuable contributions to make to the board. His dismissal was unprecedented and the replacements are not ideal. This government decision forced us to rethink the higher echelons of the central bank and they wanted to make their point, "said a person familiar with the thought of the central bank.<br />
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