FM gives it back to RBI
The inevitable happened: Finance Minister Arun Jaitley and RBI governor Urjit Patel came face to face at a meeting on Tuesday amid simmering tension after Patel's deputy made a strong call for autonomy for the central bank in a hard-hitting speech on Friday.
Among other things, RBI Deputy Governor Viral Acharya had warned that attempts to undermine the RBI's independence could be "potentially catastrophic". Acharya also said that governments that do not respect central bank independence will sooner or later incur the wrath of financial markets.
In what is widely perceived as a retort, Finance Minister Arun Jaitley on Tuesday criticized the RBI and accused it of failing to prevent bad loans. "Like the UPA, the central bank also looked the other way when banks gave loans indiscriminately during 2008 to 2014," Jaitley said.
He further questioned why the RBI did not perform its job of regulation. "I don't know what the central bank was doing. It was a regulator... They kept pushing the truth below the carpet," Jaitley said.
Of late, the RBI and the government have not been in sync on a number of issues such as the proposal to set up a new agency to regulate payment banks, the RBI's lending restrictions on banks and the central bank's handling of the NPAs.
According to media reports, government officials are upset with the RBI for going public with its criticism. Officials are worried that such a rift could tarnish the country's image among investors. Jaitley seems to be catering to this sentiment.
NO LIQUIDITY CRUNCH: The remarks came against the backdrop of the IL&FS crisis, in which the shadow lender defaulted on its debt payments. The crisis has provoked fear of contagion. The RBI reportedly told the government on Tuesday that there is "no liquidity crunch" and no sign of stress in Non-Banking Finance Companies. However, the government reportedly urged the central bank to ensure that the situation "did not worsen".
OPTIONS ON ILFS: Meanwhile, media reports say the government is examining options, including an outright sale of Infrastructure Leasing & Financial Services Ltd., to stem defaults on $12.6 billion of debt. A plan is to be submitted to the bankruptcy court on Wednesday by the stateappointed board of the lender. One of the proposals is to swell the entire stake to a financially strong investor and ensure business continuity. Other options include splitting businesses according to verticals and disposing them of to several buyers or injecting liquidity at group level to avoid an outright sale, reports NDTV.