Government vs. RBI: Tensions between RBI led by Patel and the government reach their boiling point

In the corridors of power and wealth in New Delhi and Mumbai, the growing schism between the government and the Reserve Bank of India (RBI), particularly its governor Urjit Patel, has been the subject of much discussion since first months of this year. During this period, not only did the two countries not agree on a host of issues, but communication between the government and the central bank was almost completely halted.

RBI deputy governor Viral Acharya – who is said to have been introduced by Patel – has now highlighted its differences and is clearly referring to the government's interference and the need for autonomy (
YOU had paginated his remarks in the print edition of Saturday).

This triggered fierce speculation about Patel's fate. Not only does it seem very unlikely that he will get an extension beyond the three-year term ending next September, but questions have arisen about his continuation. Patel did not respond to a message from you.

Some members of the government went so far as to say that "even Raghuram Rajan was better than this one" – and Patel's predecessor did not go to the best of terms.

In 2018 alone, there were at least half a dozen issues on which the two took opposite positions. As the government began to be angry with the RBI for not lowering interest rates – and even raising them – it has spilled over into regulation, which the central bank sees as its exclusive domain.

The February 12 RBI circular on the classification of non-performing assets and loan restructuring standards was the next flash point. The government has judged the situation too severe. In fact, he pushed all but two state-run lenders into the red.

At about the same time, when Nirav Modi's fraud broke out, the government launched counter-surveillance at the RBI, prompting an almost immediate rebuttal, with Patel seeking more powers to oversee public sector banks so that They are at the same level as their counterparts in the private sector.

In addition, the government insisted that RBI intervene to help non-bank finance companies (NBFCs), which are facing a lack of liquidity due to the defaults of repayment of IL & FS. The central bank refused to play ball.

What also thwarted the central bank's leadership is how Nachiket Mor was fired from the RBI's board more than two years before the end of his term, without formally informing him.

On Monday, the RBI 's board of directors is scheduled to meet to discuss several issues regarding what will be the second such interaction in less than a week. Last week's meeting was very stormy with S Gurumurthy, newly appointed director and activist of SJM, who wanted RBI's intervention to help small businesses, while government-appointed candidates presented in detail the need to bring capital standards into line with global standards instead of making them more rigid. .

In remarks made on Saturday that were perceived as a response to that of Acharya, although he did not appoint RBI, Finance Minister Arun Jaitley said regulators needed to have a high quality and quality discussion with all stakeholders. "I think that, for any regulatory mechanism, the consultation of stakeholders must be of a very high quality, which will probably lead to a re-examination of traditional ideas and opinions." That is why (several) regulators now publish their approach documents or their draft., they hold hearings, meet people, meet with stakeholder groups and improve what is said. "Although the niche has started with rates of interest and that the government was also upset by the fact that RBI has raised rates, it has overflowed in regulation, which the regulator considers its exclusive domain.

A separate payments regulator is another sticking point with RBI, which has publicly stated its position on why it did not support the decision. In fact, he went so far as to publish his dissent on a separate regulator on his website.