One more top cabinet minister join RBI, govt spat

One more top minister of Prime Minister Narendra Modi's cabinet joined Finance Minister Arun Jaitley in the war of words between the government and Reserve Bank of India with Road and Transport Minister Nitin Gadkari saying his experience with RBI was not good.

The regulator's circulars to banks were delaying infrastructure projects, he charged.

“The share of infrastructure to India's GDP last year was 3%. I am sure if the RBI and banks support, it can be 3.5% this year,” Gadkari said at the ET Awards ceremony held in Mumbai on Saturday.

His comments came close on the heels of Jaitley asking the central bank to ease credit and liquidity in order to support businesses gasping for breath.

Addressing the event, Jaitley said one should not lose focus on growth while trying to restore the health of banks. The finance minister, however, did not name RBI in his speech.

“Restore the health of banks but at the same time do not end up throttling growth by throttling credit and liquidity,” Jaitley told his audience, most of whom represented big and small business houses.

In a veiled reference to the regulator, Jaitley said, “Why opt for wrong solution to the problem when easier solutions are available.”

Jaitley's remarks come ahead of a crucial RBI board meeting on Monday where the government nominee is expected to press for relaxation of lending norms imposed by RBI on 11 weak public sector banks.

The lending curbs came into being after the RBI put these PSU banks under prompt corrective action (PCA) framework last year due to their large bad loans (NPAs) and weak capital level.

Under pressure

But a wider credit crunch has started to stare in the face of the government after a series of major defaults by the country's largest infrastructure lender IL&FS. The crisis has also put non-banking finance companies under pressure.

The government, at this juncture, wants the RBI to relax lending restriction on banks. The central bank on the other hand, is reluctant to do that and wants more autonomy to deal with weak banks.