Centre vs RBI: Governor gets staff union backing in tussle

The growing difference between the North Block and the banking regulator came under public glare when for the first time RBI published a dissent note on its website, expressing its disagreement with the government in setting up a separate payments regulator.

Reserve Bank of India (RBI) is uniting internally to fight for the preservation of its autonomy amid face-off with the central government over policy issues. Image source: Reuters

Reserve Bank of India (RBI) is uniting internally to fight for the preservation of its autonomy amid face-off with the central government over policy issues. After RBI deputy governor Viral Acharya fired the first salvo, the central bank's employees union on Monday launched an attack against the central government. The power tussle has also taken a political colour with the Congress party siding with RBI and its president Rahul Gandhi tweeting about it.

The growing difference between the North Block and the banking regulator came under public glare when for the first time RBI published a dissent note on its website, expressing its disagreement with the government in setting up a separate payments regulator.

"The Payments Regulatory Board (PRB) must remain with the Reserve Bank and headed by the Governor, Reserve Bank of India," the release on its website stated.

The fragile relationship reached breaking point when the government asked RBI to relax lending restrictions imposed on certain weak banks to tackle their NPAs. Last week, Acharya, a close confidante of RBI governor Urjit Patel said undermining a central bank's independence could be "potentially catastrophic". Lending restrictions are imposed on 11 government-owned banks.

"The risks of undermining the central bank's independence are potentially catastrophic," said Acharya. Rash moves could trigger a "crisis of confidence in capital markets that are tapped by governments and others in the economy," he said.

During the speech, Acharya had three of his fellow deputy governors in the audience. Reflecting unity among the RBI officials, Acharya thanked Patel for his "suggestion to explore this theme for a speech."

On Monday, the All India Reserve Bank Employees Association (AIRBEA) came out in support of the Acharya's concerns over the autonomy of the central bank.

In a press statement, AIRBEA said that "undermining the country's central bank is a recipe for disaster and the government must desist."

Backing the deputy governor, AIRBEA said that "Acharya had spoken more in disgust and despondency due to continuous nibbling by the government and the ministry of finance".

Recently, finance minister Arun Jaitley, in reference to the recent developments in Central Bureau of Investigation, had said that the country is higher than any institution or the government.

AIRBEA said that the government is prone to putting pressure on RBI to fall in line with its expediency. "Hence, this is an intrinsic schism and this is not regime specific," it said.

According to AIRBEA, the observations are not "sudden outbursts" but "was waiting to happen due to a long simmering discontent". The RBI Board is "being sought to be stuffed in a particular direction which would prompt the discerning people to look askance, and make it difficult for RBI to frame policies," it added.

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