Centre invokes never-before-used powers to direct RBI governor Urjit Patel: Report

Centre has invoked never-before-used powers under the RBI Act allowing it to issue directions to the central bank governor, in this case, Urjit Patel, on matters of public interest, the Economic Times reported on Wednesday.

Separate letters have been sent to the Reserve Bank of India (RBI) governor in recent weeks, exercising powers under the section on issues ranging from liquidity for non-banking financial companies, capital requirement for weak banks and lending to small and medium enterprises, the report said.

The RBI was not immediately available for comment. The finance ministry could not be immediately reached for comment.

Arun Jaitley Holds FSDC Meeting For First Time

Notably, yesterday, the high level FSDC meeting chaired by Finance Minister Arun Jaitley discussed liquidity issues being faced by the non-banking financial companies, sources said.  The meeting assumes significance as the FSDC is meeting for the first time after RBI Deputy Governor Viral Acharya raised the issues regarding independence of the central bank.

Unlike in the past, all the four RBI deputy governors attended Tuesday's FSDC meeting along with Patel.    
Headed by the finance minister, the Financial Stability and Development Council (FSDC) includes Reserve Bank Governor, Sebi Chairman, and heads of other regulators like PFRDA, IRDAI, and also Chairman of the Insolvency and Bankruptcy Board (IBBI).

Also Read: How Arun Jaitley destroyed autonomy call for RBI

Also read: RBI governor Urjit Patel to resign over autonomy fight with Centre?

Also read: Battle for Dignity or Power Play?

Reserve Bank Governor Urjit Patel said the liquidity problem in NBFCs is not as severe as is being projected, but assured the government that it would ensure adequate liquidity in the system, sources said after the meeting.

Acharya in a speech on Friday had said that undermining the central bank's independence could be "potentially catastrophic".

He had also called for greater powers for RBI to regulate public sector banks as it seeks to clean up the banking system, saying that central bank's independence was necessary to secure greater financial and macroeconomic stability.