India: RBI deputy governor Viral Acharya in government crosshairs

  • The government may train its guns on Reserve Bank of India deputy governor Viral Acharya if the confrontation with the central bank escalates at the RBI board meeting on 19 Nov 18, a person familiar with the deliberations within central bank’s board said.
  • In case discussions between the government and RBI break down, the government may choose to invoke Section 7 of the Reserve Bank of India Act, 1934, and at least four of the 11 independent directors of the central bank could move a no-confidence motion against Acharya for publicly airing his views protesting government interference, the person said, asking not to be identified because of the sensitivity of the matter.
  • If Section 7 of RBI Act is invoked, the five representatives of the central bank, including Governor Urjit Patel and the two finance ministry secretaries have to withdraw from further deliberations of the board.
  • “The government is clear that there needs to be resolution of all the contentious issues at this meeting,” the person said.
  • Most independent directors are in favour of easing liquidity for NBFCs and small businesses. “However, on the issue of a new economic capital framework through which the government seeks transfer of a major chunk of RBI reserves, it is a divided house,” the person said.
  • The government and some independent directors are upset with Acharya for his public outburst following RBI’s 23 Oct 18 board meeting. “It needs a minimum of four independent directors to assert an opinion or bring a no-confidence motion,” the person added.
  • Once the government invokes Section 7, the powers of the RBI board will be supreme.
  • “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,” the relevant part of Section 7 (2) of the RBI Act says.

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