Government To Continue Pressing RBI For Relaxing Norms, Funds

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He warned that the governments that did not respect the central bank's independence would sooner or later incur the wrath of markets.

According to the sources, the government would continue to press the RBI to relax norms to boost lending and transfer at least a third of its Rs 9.6 lakh crore reserve.

The report did not cite the number of sources. The RBI did not respond to an email seeking comment.

"If dividend is transferred, then an equal amount of the government bond has to be sold to suck out liquidity to avoid inflation".

Last month, RBI Deputy Governor Viral Acharya had said that undermining the central bank's independence would be "potentially catastrophic".

The RBI has consistently pushed back against calls from the government to hand over more money from its reserves to help fund the fiscal deficit.

These issues may figure during the RBI's board meeting on November 19. It also felt that the central bank has been sometimes "arbitrary" when it came to the transfer of the transfer of the interim surplus. "But the RBI is not really accountable to the board for regulatory and operational issues", said one of the sources, saying this would only change if the government invokes Section 7 of the RBI Act allowing it to dictate policy to the central bank.

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Sources have also claimed that the ministry has proposed that from 2017-18, the RBI, after taking into account its capital requirement should transfer the entire surplus to the government - a point of contention between the two bodies. The framework was reportedly adopted in July 2017 "unilaterally" by the banking regulator and the government nominees on the board were absent from the meeting, said the Finance Ministry.

Apart from Patel and his four deputies, there are 13 nominated directors on the RBI's board.

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.

After a civil war broke out in the CBI, the cage has reached another autonomous institution, RBI, wherein the standoff between the government and the central bank has traversed the headlines of the newspapers.

"The RBI is something like a seat belt, the driver being the government. there could be a possibility of not putting on a seat belt".

"While the government is looking for short-term solutions, the RBI is focused on long term solutions", he said, adding that despite disagreements, both could resolve their differences.

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