"RBI Looked Other Way", Says Arun Jaitley On Loan Excesses: 10 Points

"RBI Looked Other Way", Says Arun Jaitley On Loan Excesses: 10 Points
Government officials have recently urged RBI to relax its lending restrictions on some banks.
  1. "The central bank looked the other way when banks gave loans indiscriminately during 2008 to 2014," Mr Jaitley said.
  2. Earlier, an official, based in Prime Minister Narendra Modi's office, said that it was "very unfortunate" that the RBI took the matters public. "The government is very upset. It was not expected from the RBI," Reuters quoted the official as saying. Government officials fear that making the rift public could tarnish the country's image among investors, Reuters reported quoting sources.
  3. Another official said that it was vital that what happened between the government and the RBI should have been kept confidential. "The government respects the autonomy and independence of the RBI but they must understand their responsibility," the official said.
  4. Mr Acharya's speech was an indication that the RBI is pushing back hard against government's pressure to relax its policies and reduce its powers. In his speech to top industrialists, Mr Acharya cited the Argentine government's meddling in its central bank's affairs in 2010 as an example of what can go wrong. That led to a surge in bond yields that badly hurt the South American economy.
  5. "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," Mr Acharya had said.
  6. Government officials have recently urged RBI to relax its lending restrictions on some banks, and the Centre has been trying to trim its regulatory powers by setting up a new regulator for the country's payments system.
  7. The Centre has also been pushing the central bank to part with some of its Rs 3.6 lakh crore surplus to help bridge the fiscal deficit and finance its welfare programmes.
  8. Government officials were particularly angry that Mr Acharya launched the attack while PM Narendra Modi was about to head to Japan for talks with his Japanese couterpart Shinzo Abe, sources told Reuters
  9. The finance ministry was also worried about how markets would respond to Mr Acharya's public comments. However, they felt more relaxed after domestic indices rose on Monday. The gains were largely a result of a separate announcement by the RBI about an injection of liquidity through government bond-buying.
  10. Government officials believe that RBI Governor Urjit Patel has some responsibility for the controversy, and he cannot expect an extension of his current three-year term - which ends next September - "as his right", reported Reuters quoting sources. (With Reuters inputs)
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