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Govt at unease with ‘Viral’ speech, upset that RBI made the rift public

Sources said that Viral Acharya’s speech has caused ‘trepidation’ in the government and raked up concerns that it could rile up the market

Govt at unease with ‘Viral’ speech, upset that RBI made the rift public
Govt at unease with ‘Viral’ speech, upset that RBI made the rift public

New Delhi: The speech given by Reserve Bank of India (RBI) deputy governor Viral Acharya that hit headlines a few days back has caused ‘trepidation’ in the government and raked up concerns that it could rile up the market, a source said.

The viral speech given by Acharya on October 26 was the second instance when the tussle between the country’s central bank and the government was out into the open. Sources have, however, said that there is no reason to believe that Governor Urjit Patel will be asked to leave despite mounting differences between the two on several issues. “There is no question of asking Patel to go — we do not want him to go,” an official said and added, “The only reason that the RBI governor should step down is if there is a health issue.”

The flashpoints

There’s a feeling within some sections of the government that with the October 26 speech, the RBI has crossed a line and if there were differences, they could have been aired in private and not on a public platform. “Such statement and bluster create panic in the market,” an official said. Before Acharya made a case against government interference in the day-to-day functioning of the RBI, the central bank had released a dissent note on the report of an inter-ministerial committee recommending an independent Payments Regulatory Board (PRB) a week before.

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The RBI wanted the body to be under its wing as proposed by the government earlier. The note was part of the report that was made public by the finance ministry earlier. The RBI and the government are also at loggerheads with respect to the nonbanking finance company (NBFC) crisis, with the latter asking the former to help ease the liquidity squeeze gripping the NBFCs and relax the prompt corrective action (PCA) regime for stressed banks and draw further upon the central bank’s reserves to help close the fiscal gap. The finance ministry is also keen on putting down some norms, drawn from international best practices or the Bank of International Settlements, to determine how much excess capital the central bank retains, which according to the government is over Rs 3.5 lakh crore. However, discussions on this issue have been going on for a while, even at the time the UPA regime was in power.

The removal of Nachiket Mor and the new appointees to the board

The Centre has been asking for a big onetime payment from these reserves, which the central bank has been resisting. Apart from all this, the RBI has been particularly unhappy with the removal of Nachiket Mor, who was known to be vocal on banking issues, from the central board by the government. Many believe that the episode was one of the prime reasons behind the bank going public with its differences. Among the new names appointed to the board by the government to make it more vibrant and diverse were S Gurumurthy, Satish Marathe, Revathy Iyer and Sachin Chaturvedi. And Gurumurthy is an RSS ideologue who regularly hit out against former RBI Governor Raghuram Rajan over the RBI asset quality review, saying that it merely weakened India’s banks.

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