Rupee, bond prices fall as RBI-govt spat seen widening

Urjit Patel governor of the Reserve Bank of India at the spring meetings of the International Monetary Fund and World Bank in Washington D.C

"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", the law reads.

Government official were very upset by Acharya's comments, which included a reference to problems created in Argentina when its government meddled in central bank affairs, Reuters reported.

Reserve Bank of India Deputy Governor Viral Acharya's speech last week was seen by many as a clear indication of the friction between the government and the central bank, which has now properly spilled over into the public domain.

Relaxation of lending norms: Non-official directors of the central banking institution have been demanding a slackening "MSME forbearance" (micro, small and medium enterprises).

The ongoing spat between the government and the Reserve Bank of India (RBI), if not contained, will have dire consequences on the markets, feel Dalal Street experts.

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Amidst the alleged ongoing rift between the government and RBI, sources have said that RBI Governor Urjit Patel will not quit from his post.

"Governments that do not respect central bank independence will sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution", he said.

Neither denying nor accepting, the Ministry of Finance has issued a statement saying that extensive consultations on several issues take place between the government and the RBI and only final decisions are communicated.

Adding to the row, Finance Minister Arun Jaitley blamed the central bank for failing to stop a lending spree during 2008-2014 that left banks with $150 billion of bad debt.

Public sector banks: Following the Nirav Modi-Punjab National Bank case, the RBI and Centre began pointing fingers at each other.

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The Finance Ministry said that it has never made public the subject matter of consultations with the apex bank.

Prompt corrective action (PCA): 11 public and 1 private bank in the country have been placed under what is called a PCA framework - rules the RBI puts in place for weaker banks - which bars lending by these banks, among other things, until they strengthen their capital base.

But it was unclear if it had used powers for the first time under the RBI Act to give the bank instructions.

Earlier, a letter by the All India Reserve Bank Association had said that the deputy governor, Viral Acharya, spoken more "in disgust and despondency" due to continuous nibbling by the government and the finance ministry. "It shows that government is hiding facts about the economy and is desperate (sic)", he said in a series of tweets. Neither the government nor the RBI has signaled any thaw of any of these specific issues yet.

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