Board of the Reserve Bank of India has asked for more time to review the government's demand for a greater say in the central bank's functioning. The issue has fostered hostilities between both sides, creating a rift and possibly causing the resignation of former RBI chief Urjit Patel. In a statement, the central bank said, “The board deliberated on the governance framework of the Reserve Bank and it was decided that the matter required further examination.”
The appointment of Governor Shaktikanta Das has raised several eyebrows as he is seen as someone more susceptible to the government's requests. Prime Minister Narendra Modi had named him to the post a day to the post after Patel abruptly submitted his resignation. Priyanka Kishore, head of India and South East Asia Economics at Oxford Economics, Singapore, said the “meeting failed to shed any new light on Governor Das' stance on banking regulation and other issues. RBI is clearly trying to let matters cook before many any further decisions on these fronts.”
The 18-member board that includes monetary policy makers, finance ministry representatives and industrialists, also reviewed matters relating to liquidity and credit delivery to the economy, along with discussing the current economic situation, global and domestic challenges. Many called this a “frightening” peek into what's in store for Das as he settles into the new role. Abhijit Banerjee, professor of economics at Massachusetts Institute of Technology said, “It's frightening because it's very important to show respect for the process. Das is going to worry he got chosen because he's not the best person for the job but because he is someone who the government favoured. He will feel he doesn't have independent authority.”
RBI has so far kept a tight leash on liquidity, restricting some weak banks from lending and refusing to bailout the shadow banking sector. The Centre, on the other hand, has been at the forefront of new lending in the past three year. Modi is keen to keep growth ahead of a national election early next year and according to recent data showed the economy's expansion may be under threat.
