The government did not deny reports that it invoked Section 7 of the RBI Act 1934 to initiate discussions on various issues, including easing prompt corrective action (PCA) framework and providing liquidity to the non-banking finance companies (NBFCs).
According to the provision, the Central government may issue directions to the RBI as it may “consider necessary in public interest” after consultation with the RBI Governor. Section 7 deals with ‘management’ of RBI.
The ministry said that both the government and the RBI “have to be guided by public interest and the requirements of the Indian economy.”
The government and the RBI have had disagreements on a host of issues recently which include easing capital adequacy norms for public sector banks, bringing some of them out of PCA, forbearance for the MSMEs and liquidity situation in NBFCs.
“Extensive consultations on several issues take place between the government and the RBI from time to time. This is equally true for all other regulators,” the finance ministry said.
It added that the government has “never made public the subject matter of those consultations.”
“The government, through these consultations, places its assessment on issues and suggests possible solutions. The government will continue to do so,” the ministry, concluding statement said.
The rift between the government and the RBI gained public attention when recently RBI Deputy Governor Viral Acharya gave a strong public speech advocating the independence of the central bank.
Acharya made a case for granting more independence to the central bank and said that the governments that did not respect their central bank's independence would invite the wrath of financial markets.
Acharya had also said that the central bank must have more powers to supervise public sector banks and keep its balance sheet strong, and have an adequate regulatory scope. This independence, he said, was necessary to secure greater financial and macroeconomic stability.