What is Section 7? Modi govt's 'Brahmastra' reportedly used against RBI governor Urjit Patel

The Government of India led by Prime Minister Narendra Modi has reportedly invoked never-before-used powers under the Reserve Bank Of India Act to make the central bank fall in line. Section 7 of the Act allows the government to issue directions to the RBI Governor on matters of public interest. The government has, however, not confirmed the use of Section 7. A number of business TV channels and newspapers have made the report quoting sources. An ET report published in Hindi Daily Navbharat Times said, "Amid the ongoing conflict, Modi government has used the 'Brahmastra' against the Reserve Bank of India."  

As per a report by The Economic Times newspaper, the government has exercised powers under section 7 of the RBI Act on issues ranging from liquidity for non-bank finance companies, capital requirements for weak banks and lending to small- and medium-sized companies. They had sent letters to the RBI governor in recent weeks while exercising the powers under the RBI Act provision. So, What the Section 7 of RBI Act says: 

Section 7 of the RBI Act deals with "management" of the central bank. It says:

1. The Central Government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest.

2. Subject to any such directions, the general superintendence and direction of the affairs and business of the Bank shall be entrusted to a Central Board of Directors which may exercise all powers and do all acts and things which may be exercised or done by the Bank.

3. Save as otherwise provided in regulations made by the Central Board, the Governor and in his absence the Deputy Governor nominated by him in this behalf, shall also have powers of general superintendence and direction of the affairs and the business of the Bank, and may exercise all powers and do all acts and things which may be exercised or done by the Bank. 

Thus, Section 7 of RBI Act empowers the Centre to direct the RBI on matters of public importance. 

RBI vs Centre

The alleged tensions between the Centre and the RBI has done the rounds in media reports since last week when Deputy Governor Viral Acharya said undermining central bank independence could be "potentially catastrophic". His statement was seen as an indicationthat the authority is pushing back against government pressure to relax its policies and reduce its powers ahead of a general election due by May.

There has been no official word on this from the RBI on this. 

Union Finance Minister Arun Jaitley on Tuesday blamed the RBI for failing to stop a lending spree during 2008-2014 that left banks with $150 billion of bad debt.