Govt-RBI spat out in the open

In the ongoing war of words between the Reserve Bank of India (RBI) and the government, it was Finance Minister Arun Jaitley’s turn on Tuesday to flay the central bank for its lack of regulatory oversight in the NPA (non-performing assets) mess.

“I don’t know what the central bank was doing. It was a regulator... They kept pushing the truth under the carpet,” Jaitley said, in the most hard-hitting remark coming within days of RBI Deputy Governor Viral Acharya warning that undermining a central bank’s independence could be “potentially catastrophic” for the governments.

Jaitley said there was “indiscriminate lending” between 2008 and 2014 only to keep the economy going soon after the global financial crisis. He said both the government of the day and the regulator looked the other way.

The finance minister’s comments came minutes before he and RBI Governor Urjit Patel met along with other financial sector regulators to discuss domestic and global economy amid looming trade wars and high crude prices and loan default by housing finance company IL&FS among other things.

Read also: FULL SPEECH: Acharya's words that shook the govt

In the high-level and most confidential Financial Stability and Development Council (FSDC), all the four deputy governors of RBI were present, for the first time, along with the governor.

That included Acharya whose remarks at a lecture in Mumbai last Friday created a flutter in the government that also chose another event to hit back at the RBI.

A regulator attending the meeting later told mediapersons that the RBI autonomy issue was not discussed.

Read also: Heed warning: RBI sends out a strong message to govt

The government, however, asked the RBI to prevent a contagion of the IL&FS crisis to other sectors of the economy.

Among other things, the issue concerning real interest rate, current liquidity situation, NBFCs and mutual fund space, cyber security and crypto currencies also came up for discussion.

The government’s latest plan to create a separate regulator for the country’s payment system has been vehemently opposed by the RBI as it seeks to trim the central bank’s regulatory powers. The government has also in the past criticised RBI’s move to impose lending restrictions on weak public sector banks, saying it has stifled the MSME sector and economy.

The RBI had put 11 of India’s 21 PSU banks under prompt corrective action, asking them to take rigorous steps to clean up their balance sheets. The finance minister subsequently opposed the move.

Read also: Modi govt destroying autonomy of RBI: Congress

Acharya, in his Friday speech, had defended the move saying the step was warranted to save more taxpayers’ money going into their recapitalisation.

Tuesday's meeting of the FSDC was attended by its members, including chief of Securities and Exchange Board of India, finance secretary, Department of Economic Affairs, secretary, financial services, secretary, chief economic adviser and chairpersons of the Insurance Regulatory and Development Authority of India and Pension Fund Regulatory and Development Authority.