Govt-RBI rift widens; PM may intervene

Amid growing rift between the Centre and the RBI and rising voices of dissent after Deputy Governor Viral Acharya’s fresh call for the central bank’s autonomy, Prime Minister Narendra Modi is likely to intervene and douse the fire.

A top official in the finance ministry said the prime minister may speak on the issue himself. “Let the prime minister handle the issue,” the official said when prodded on the ongoing uproar.

Another source said the ministry has been asked to maintain silence on the issue until Modi returns from his Japan tour.

The cold war between the government and RBI hotted up last week when Acharya raised concerns over RBI’s autonomy being under threat. Acharya had said the governments that did not respect their central bank’s independence would sooner or later incur the wrath of financial markets. This was followed by the most vocal protest by the All India RBI Employees Association which said the long-simmering discontent between the central bank and government must be sorted out.

“We firmly hold that undermining the central bank is a recipe for disaster and the government must desist (from) it. Let the two talk and sort out issues instead of the government trying to ride the roughshod over the RBI,” the association said in a statement.

It also appealed to experts to persuade the government to let the RBI perform its duties in an unfettered manner.

Prior to Acharya, Governor Urjit Patel had openly criticised the government pointing at a “dual regulation” by the finance ministry and the RBI over state-run banks. The governor had hit back at the government after Finance Minister Arun Jaitley questioned the regulators’ oversight on the Rs 13,000-crore scam involving diamond jeweller Nirav Modi.

This was the first salvo fired by a low-profile Patel at the government. Thereafter, several decisions that the RBI took were termed “harsh” by the finance ministry. One such decision was the RBI’s prompt corrective action under which it had put half of the 21 public sector banks under a close watch and stopped them from lending further.

The move, which was meant to tackle the growing NPA problem in the banking sector, has of late unnerved the government which feels it is stifling MSME business.