Urjit Patel may resign as Jaitley’s remarks widen RBI-govt rift

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In contrast, a central bank plays a test match, trying to win each session but, importantly, also survive it so as to have a chance to win the next session, Acharya had said. The association said Acharya's comments about government's interventionist role vis-àvis the RBI have created a flutter across the nation.

The RBI deputy governor reminded that unlike governments, which often have a short-term horizon, the central bank works on a long-term agenda.

While speculation abounded on Wednesday about whether the government had invoked Section 7 of the RBI Act, which would give the government the ability to direct the central bank's actions, the Finance Ministry remained studiously silent on the issue.

A report by news agency Reuters said that Urjit Patel may consider resigning from his post given a breakdown in relations with the government headed by Prime Minister Narendra Modi.

What inflamed the tension further was the statement by Union Finance Minister Arun Jaitley, who blamed the central bank for failing to stop a lending spree during 2008-2014 that left banks with $150 billion of bad bank loans. "In particular, the central bank is not directly subject to political time pressures and the induced neglect of the future; by virtue of being nominated rather than elected, central bankers have horizons of decision-making that tend to be longer than that of governments, spanning election cycles or war periods", he added. These powers allow the government to issue directions to the central bank governor. It was a regulator of these.

In the current scenario of lack of liquidity, particularly of short term Commercial Papers, it is leading to a contagion effect, it said adding that the RBI is required to intervene in the interest of the entire financial sector.

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There's no official confirmation, but a letter has reportedly been sent. Arguing against the Centre's proposal, the RBI had said, "The digital payments have made good and steady progress".

The micro, small and medium enterprises (MSME) sectors and power producers have been the worst affected, and have sought more time for resolution.

The statement comes amid reports of the government having issued directions to the RBI on issues such as easing lending norms to infuse liquidity in the system.

The government of the day, he said, was pushing banks to lend which resulted in credit growth in a year shooting up to 31 percent from the normal average of 14 percent. While refusing to divulge the contents of the letter, Gurumurthy told The Economic Times that he had objected to "Acharya going public on issues not discussed in or disclosed to the board which met just two days earlier".

"It is hard to believe that the RBI governor will resign because it is unprecedented and would look quite irresponsible and (an) immature step", said a senior trader at a foreign bank.