RBI Governor Urjit Patel may resign, Congress leader says ‘We did not invoke section 7’

The rift between the government and India’s central bank seems to have widened and it could lead to the resignation of Reserve Bank of India (RBI)’s governor Urjit Patel, reported CNBC TV 18.

There has been an irreversible breakdown between Urjit Patel and the government, the media said, adding that all options were on the table.

First time in the history, the government has invoked never-before-used powers under the RBI Act allowing it to issue directions to the central bank governor on matters of public interest, The Economic Times reported.

According to reports, the government had sent letters to Urjit Patel in recent weeks exercising powers under section 7 of the RBI Act on issues ranging from liquidity for non-bank finance companies, capital requirements for weak banks and lending to small- and medium-sized companies.

What Section 7 Says?

Section 7 says that ‘the Central Government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest’, a statute that has not been used in Independent India, according to The Economic Times.

The government seems upset with some of the RBI’s decisions, including its move to restrict lending by NPA-laden banks under the “prompt corrective action” framework.

Former finance minister P Chidambaram took to Twitter to point out that the law had never been invoked before. He tweeted: “If, as reported, Government has invoked Section 7 of the RBI Act and issued unprecedented ‘directions’ to the RBI, I am afraid there will be more bad news today.”

If, as reported, Government has invoked Section 7 of the RBI Act and issued unprecedented ‘directions’ to the RBI, I am afraid there will be more bad news today

— P. Chidambaram (@PChidambaram_IN) October 31, 2018

Adding that he said, “We did not invoke Section 7 in 1991 or 1997 or 2008 or 2013. What is the need to invoke the provision now? It shows that the government is hiding facts about the economy and is desperate.”

If, as reported, Government has invoked Section 7 of the RBI Act and issued unprecedented ‘directions’ to the RBI, I am afraid there will be more bad news today

— P. Chidambaram (@PChidambaram_IN) October 31, 2018

The rupee dipped to 73.99 against US dollar from 73.6750 on Tuesday, after touching 74.04, its lowest since October 15.

Also read: Government announces five measures to stabilise rupee