A recent suggestion to create a payment regulator outside the purview of the Reserve Bank has also been opposed by the RBI.
This did not go down well with the Centre, who said that they were 'upset' that the RBI publicly spoke about the rift. The Economic Affairs Secretary on Wednesday, however, refused to comment anything with respect to it. This act empowers the government to issue any direction to the Central bank governor on matters of public interest.
"Both the Government and the Central Bank, in their functioning, have to be guided by public interest and the requirements of the Indian economy".
The Finance Ministry on Wednesday acknowledged that the autonomy of the Reserve Bank of India (RBI) is an "essential and accepted governance requirement", but it neither confirmed nor denied that it had issued directives to the bank under Section 7 of the RBI Act. The statement issued by the union said, the hiatus has widened now and the deputy governor has spoken more "in disgust and despondency" due to continuous nibbling by the government and the finance ministry.
The micro, small and medium enterprises (MSME) sectors and power producers have been the worst affected, and have sought more time for resolution.More news: Bomb suspect set for Florida court appearance
But it was unclear if it had used powers for the first time under the RBI Act to give the bank instructions.
NBFCs and Housing Finance Companies (HFCs) are suffering from asset-liability mismatches (ALM), CII noted adding that in a worst-case scenario, this could lead to a run on mutual funds and defaults in the NBFC sector.
Though differences between the government and RBI have peaked this year over a number of issues, including the central bank's handling of the Nirav Modi crisis and the latter's firm stand on bringing weak banks under prompt corrective action, the latest reason for the escalation is the liquidity crisis being faced by NBFCs. Section 7 allows the govt to override RBI's autonomy. What is the need to invoke the provision now? "It shows that government is hiding facts about the economy and is desperate (sic)", he said in a series of tweets.
"The government of India has never made public the subject matter of those consultations". However, simmering tensions came to a head on October 26, when RBI Deputy Governor Viral Acharya, speaking at the A D Shroff Memorial Lecture in Mumbai, made a scathing statement against the government. Only final decisions are communicated.
"The markets have taken these developments in their stride as there is an inherent belief that the central bank is independent and will continue with its rules-based mandate, whilst the government focuses on reforms and looks to buoy growth, drawn also by the approaching elections".