Brewing for over a year, now the rift between RBI and government seems to have reached to the boiling point with an almost complete breakdown in communication. The recent speech by the Deputy Governor of the Reserve Bank of India, Viral Acharya drove further tension in the already strained relationship between the government and the RBI.
Acharya in his speech stressed on the importance of his demand of making RBI an autonomous body and also said ‘keep your hands off the RBI’ which sounded as a warning to the government.
Disappointed with Interest Rates
Tension rose after the government got disappointed with the inflation-focused RBI could not cut interest rates and continued to raise it. Following which a host of issues emerged where the government and the RBI remained on huge differences in opinions.
Non-Performing Asset classification
On February 12, RBI had circulated the classification of non-performing assets and norms of loan restructuring had to be the next thing on focus. However, the government found it ruthless and cold.
Govt reaction over Nirav Modi scam
When the Nirav Modi Scam came in media, the government lashed out at the RBI over its operation and administration. The government almost immediately came up with a counter-argument and blamed Urijit Patel of seeking more power to oversee public sector banks.
Non-Banking Finance Companies
The other problem where the shoe pinched was when the government wanted RBI to provide relief to non-banking finance companies, struggling with a cash crunch after IL&FS defaulted on repayments, but the RBI clearly refused from getting into the game.
Removal of Nachiket Mor irked RBI
Nachiket Mor in RBI was removed from the board two years ahead of his tenure ends without any formal information. This had annoyed the RBI and the top bank linked it to Mor’s being vocal against the government’s demand of higher dividend.
However, the government denies of any attempt to try encroaching on RBI’s turf and says that the RBI’s autonomy should be a means for achieving faster growth.
