The rift between the RBI Governor Urijit Patel and the Central government reportedly widened with Central Bank’s Governor considering to resign from the post of the Governor. The following development surfaces soon after there were reports of a rift between the RBI Governor and the government. Reports add that the Central government has invoked some powers mentioned under the RBI Act in order to issue directions to the RBI Governor Urijit Patel. The directions reportedly come on the matters related to the public.

As per a report by Economic times, in recent weeks, separate letters have been sent to RBI Governor Urijit Patel. The letters were relating to the issues of capital requirement for weak banks, liquidity for Non-Banking Financial Company (NBFC) and money lending to SME’s. The following development surfaced a few days after the RBI deputy governor Viral Acharya, during a public address, said that the interference by the Centre in the working of the RBI could result in disastrous consequences. He further sought independent working of the Central Bank.

The Centre has invoked Section 7 of the BI Act that empowers it to give instructions to the RBI Governor in order to act on certain issues. The issues which were called upon by the Centre were reportedly in public interest. What’s interesting is that the following Section of the RBI Act has never been used by any government post the independence of India.

As per the Section 7 of the RBI Act, the Central Government is entitled to give directions to the Central Bank after it consults the RBI Governor. The directions can be given on the matter which the government may consider of public interest. While there are reports suggesting that the Centre has already invoked Section 7 of RBI Act, it still remains unclear on how it will be used.

With Government invoking the never used section, the central bankers feel that it will leave the very little scope of the bank to work in the way they deem to be fit. The folloiwng can also be used by the government to push their agendas via Central Bank. RBI and the government have reportedly been at the loggerheads over several issues including the government demanding ease in lending rules for at least 11 banks under prompt corrective action (PCA) framework, while the regulator thinks otherwise.

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