RBI Vs Govt, again! Peace measures go hand in hand after final swirl, Bank reserves another blow

In the evening, NS Vishwanathan, RBI deputy governor, returned with his own note, explaining why the regulator's capital requirements should not be diluted.

The fragile peace between the Ministry of Finance and the central bank has been broken. Friday, when the Secretary of State for Economic Affairs, Subhash Chandra Garg, launched a big blow against the harsh warning of the Deputy Governor of the Reserve Bank of India (RBI), Viral Acharya, last week, that governments introducing them into the autonomous regulatory space of the central banks would suffer "the wrath of the markets" [19659003] In the evening, NS Vishwanathan, deputy governor of the RBI, returned with his own ripsote , to explain why the regulator's capital adequacy standards should not be diluted.

In a tweet, Garg said, "Trading in rupees is less than 73%. Brent crude oil is below $ 73 a barrel, markets rose more than 4% over the week and bond yields below 7.8%. The anger of the markets?

In response to the government's statement that CRAR's standards (capital ratio to risk-weighted badets) were too high – higher than Basel standards – Vishwanathan said, "We
We must beware of any attempt to dilute standards to align them with international benchmarks, as this will be a matter of nostalgia and
will result in our banks being strong in the true sense of the word and not in reality. "On Wednesday, the Ministry of Finance had declared to the government has" maintained and respected "the autonomy of the central bank as the essential and accepted requirement of governance, in remarks generally regarded as the will of the ministry to make peace with the RBI, however, even this statement was not completely devoid of rancor.

The Ministry reminded the RBI that it had never made public the details of the consultations with the central bank and that only the final decisions had been communicated to the RBI.Outside world.At the same time, the International Monetary Fund (IMF) announced that it was monitoring the gap between the RBI and the Ministry of Finance, and emphasized its usual opposition to any initiative undermining the independence of central banks around the world Gerry Rice, Director of Communications from the IMF, said about this quarrel: "Let's go back, as a general principle, and we have already said … we support clear lines of accountability and accountability." "Best practices Internationals are: that there should be no government or industry interference that would compromise the independence of the central bank and the financial supervisor. "

To advocate for a strengthening of the RBI's powers, Acharya on Friday delivered a scathing speech on the intrusion of election-related governments in the autonomous central bank space. The decision-making horizon of a government is shortened like a T20 match, he said, using a glaring badogy, but "a central bank is playing a test match trying to win every session, but especially survives for a chance to win the next session, etc. ", he added.
Acharya's remarks took place in the midst of stifling tensions between the government and the RBI following the proposal from a government panel to establish a regulator of payments outside the central bank and to the finance ministry's attempt to convince the RBI to change its corrective regime for fragile banks, as well as to reduce the risk of bankruptcy. a circular on the It's under stress resolution, especially for powerful players. Friction reached its peak when the Finance Ministry invoked Article 7 of the RBI law, which had never been used, to request consultations with the central bank (although the government does not have any). did not use this article to give binding orders to put the RBI in the line of fire).

Differences in the badessment of the tightening of liquidity after the IL & FS licensing crisis, the increase in MSME credit and the larger transfer of RBI surpluses to the government also contributed to the situation.
As FE reported previously, between the ministry and the RBI could surface again when the RBI board meets on November 19. The department will probably resume the contentious issues.