Rift between RBI and government widened after October 23 board meet

Differences between the Reserve Bank of India and the government escalated after the last board meeting of the central bank ended inconclusively, people with knowledge of the matter told ET. The government felt that some of the issues raised could have been addressed during the October 23 meeting, they said.

“There was agreement on four of the five agenda items but no resolution was passed,” said a person familiar with the matter.

The issues discussed included credit flow to micro, small and medium enterprises (MSMEs) and the liquidity squeeze on non-banking finance companies. There was a sense that the meeting was ended abruptly before key issues raised by some members could be addressed, said the people cited above.


‘RBI Answerable to Board’
S Gurumurthy, recently appointed to the RBI board by the government, had suggested that there was broad consensus on most matters discussed at the meeting.

“All directors would testify that out of 5 issues, on 4 there was agreement. On one not. No pressure at all,” he had tweeted.


There is a view in government circles that the situation should not be perceived as being about protocol but about how substantive issues of public interest need to be dealt with, said the people cited above. An impression has also been gaining within the government that the board is not heeded enough and that meetings are not held that regularly.

“RBI is not autonomous of its board....It is answerable to the board,” said the person cited above.

The government expects the next meeting of the board, scheduled for November 19, to address the issues raised by it. Members were informed about the meeting on Wednesday.

The central board of directors governs RBI’s affairs. It is appointed by the government in accordance with the Reserve Bank of India Act.

The official directors include the RBI governor and four deputy governors. Ten non-official directors are nominated by the government from various fields. Four more directors represent each of the regional boards of RBI.

The board currently includes Tata Sons chairman N Chandrasekaran, former M&M finance head BN Doshi, former Gujarat chief secretary Sudhir Mankad and former chairman of the Commission for Agricultural Costs & Prices Ashok Gulati. Joining them are chairman of recruitment consultancy Teamlease Manish Sabharwal, cooperative movement veteran SK Marathe, Sun Pharma MD Dilip S Shanghvi, former bureaucrats PK Mohanty and Revathy Iyer, as well as director general of the Research and Information System for Developing Countries Sachin Chaturvedi, besides Gurumurthy. Economic affairs secretary Subhash C Garg and financial services secretary Rajiv Kumar are also on the board.

ET reported on October 31 that the government had relied on Section 7 (1) of the RBI Act, which gives it powers to issue any direction to the governor on matters of public interest, and sent at least three letters in the past few weeks on key issues ranging from the transfer of reserves, the prompt PAC framework and liquidity management.