RBI governor Urjit Patel could resign on November 19

RBI is Like Seat-Belt, Will Prevent Accident: Raghuram Rajan

Sources have confirmed to The Indian Express that the RBI views this attempt by the government to dip into its reserves can adversely impact macro-economic stability.

It is unclear, though, how the government will seek to exert pressure through the RBI's Central Board as the body is a largely symbolic one, which has never had a direct say in the bank's directives and policies, according to two additional sources with knowledge of the law under which the central bank operates.

One of the nominee director on RBI's Central Board S Gurumurthy has reportedly written to RBI Governor Urjit Patel regarding Deputy Governor Viral Acharya raising the issue of the bank's autonomy at a public event recently.

Also emphasising on the important role of the RBI board in managing the standoff between the bank and the government, he said: "The role of the RBI board is not operational but to coach".

Acharya had said that more needed to be done to ensure effective independence for the central bank in its regulatory and supervisory powers.

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The government wants the RBI to part with most of its profit as dividend.

"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; their wiser counterparts who invest in central bank independence will enjoy lower costs of borrowing, the love of global investors, and longer life spans", Acharya had said.

The Modi government had refused to give Rajan a second term as the RBI governor in 2016. He also described the 12 February circular for NPA recognition as a "landmark reform", just like the passage of the Insolvency and Bankruptcy Code.

The deputy governor's comment had generated controversy, hinting at the growing rift between the government and the central bank. But the monetary authority has so far been resisting any such push. "If the RBI governor is forced to resign, it will be a huge setback for the economy".

Earlier, Moneylife had reported that as the government and central bank are engaged in a power tussle, there is a chance that Patel could step down. Also, the surplus with RBI is a fiscally prudent measure, and if the government tries to tap into it, then in times of crisis, both the government and the RBI might face a crunch, the pain of which will ultimately be borne by us, the citizens.

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