RBI vs Centre: Governor Urjit Patel meets Narendra Modi to discuss differences, resolve issues; media dubs it 'peace talks'

Amid the increasing rift between the Bharatiya Janata Party-led Centre and the Reserve Bank of India (RBI), governor of the central bank Urjit Patel is believed to have met with Prime Minister Narendra Modi last Friday. The RBI governor will not be resigning, sources privy to the matter have told CNBC-TV18. Patel’s meeting with the Prime Minister came days before the RBI’s crucial board meeting on 19 November during which contentious issues are likely to come up for discussion, CNBC-TV18 said.

1st signs of a thaw after the heated battle between the Government & RBI. Sources say that Urjit Patel met PM Narendra Modi last Friday. @latha_venkatesh gets us more pic.twitter.com/J5jTCEkXmK

— CNBC-TV18 (@CNBCTV18News) November 12, 2018

The meeting was held to work out a solution on the contentious issues that have been a flash point between the RBI and the government during the last few weeks. Modi and Patel had discussed the issues related to the capital framework, management of surplus and non-performing assets (NPA) norms for Micro, Small and Medium Enterprises (MSME), sources privy to the matter told CNBC-TV18. [caption id=“attachment_4390411” align=“alignleft” width=“380”]  File image of RBI governor Urjit Patel. AFP.[/caption] Tensions between the RBI and the government have recently escalated, with the finance ministry initiating discussion under the never-used-before Section 7 of the RBI Act which empowers the government to issue directions to the RBI governor. The RBI has a massive Rs 9.59 lakh crore reserves and the government, if reports are to be believed, wants the central bank to part with a third of that fund — an issue which along with easing of norms for weak banks and raising liquidity has brought the two at loggerheads in recent weeks. The government may soften its stance on seeking RBI’s capital, said the sources, adding that it won’t ask for a special window for non-banking finance companies (NBFC) to ease liquidity situation. RBI deputy governor Viral Acharya had in a speech last month talked about the independence of the central bank, arguing that any compromise could be “potentially catastrophic” for the economy. Last week, economic affairs secretary Subhash Chandra Garg had said the government was not in any dire need of funds and that there was no proposal to ask the RBI to transfer Rs 3.6 trillion. He further said the only proposal “under discussion is to fix appropriate economic capital framework of RBI”.

@CNBCTV18News Exclusive: RBI Gov Patel met PM on Friday, sources tell us. Disagreements betn RBI & govt may have been discussed. Stand off thawing. RBI may pull out of Prompt Corrective Action straitjacket some banks whose NPAs have been falling; Also some sops for SMEs

— Latha Venkatesh (@latha_venkatesh) November 12, 2018

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Patel’s meeting with the Prime Minister came days before the RBI’s board meeting on 19 November during which contentious issues are likely to come up for discussion. There are indications that RBI may create a special dispensation for lending to small and medium enterprises, but it was not immediately clear if an agreement has been worked out to ease liquidity situation for non-banking finance companies (NBFCs) and the RBI parting with its substantial part of its surplus. --With PTI inputs