According to latest reports, Ministry of Finance released a statement which said, "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 political dysfunction is yet further excuse for foreigners to head for the hills, sustaining pressure on INR", said Sue Trinh, head of Asia foreign-exchange strategy at Royal Bank of Canada in Hong Kong. For instance, a senior government official maintained that the provision only relates to the management of the central bank and the central government may not be empowered to issue directions to the RBI on policy-related matters. "For the objective of extensive consultations on several issues take place between the government and the RBI from time to time".
Finance Minister Arun Jaitley blamed the Reserve Bank of India (RBI) on Tuesday for failing to stop a lending spree between 2008-2014 that left banks with huge bad debts, inflaming a row that recently erupted between the government and the central bank.
They said the RBI should not air confidential matters in public and expressed fears it could tarnish India's image among investors.
In open letter, All India Reserve Bank Employees Association says govt must desist from nibbling at central bank's autonomy and let it do its job in an unfettered way, else it will incur the wrath of financial markets.
There has been an irreversible breakdown between the RBI Governor Urjit Patel and the government, the media said, adding that all options were on the table.
According to the RBI, if repayment is delayed by even one day, the account should be seen as stressed and the banks would be required to initiate resolution. Second letter was on using RBI's capital reserves and the third letter was on relaxing constraints on PCA banks for loans to SMEs. 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. The official said Patel may face a tough time when he appears before a parliamentary standing committee on November 12.
Patel had come under increasing criticism from the banking industry as well as the government over his handling of non-performing assets (NPAs) and his stance on the autonomy of 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.