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Updated on: Wednesday, May 29, 2019, 05:04 AM IST

What is Section 7 of the RBI Act? All you need to know about the RBI vs government rift

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The rift between the government and the RBI, especially its Governor Urjit Patel, has widened over several past months as both increasingly differed on key issues. The tensions between the finance ministry and the RBI have risen since the bank’s deputy Governor Viral Acharya said in a speech that undermining a central bank’s independence could be “potentially catastrophic”, an indication that the regulator is pushing back hard against government pressure to relax its policies and reduce its powers.

After Viral Acharya’s statements, which cleared the air about ongoing tug of war, Union finance minister Arun Jaitley criticised the Reserve Bank of India (RBI) for failing to prevent lending excess in a speech on Tuesday. “The central bank looked the other way when banks gave loans indiscriminately during 2008 to 2014,” Jaitley said while speaking at an event in New Delhi.

But it’s just not about falling numbers of RBI, the Government is also planning to invoke Section 7 of the RBI Act. On October 31, India woke up to multiple media reports saying the government has decided to invoke Section 7 of the RBI Act in order to get its way. People were trying to make sense of what was happening, starting with what ‘Section 7’ actually is.

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What is Section 7 of the RBI Act?

The Section empowers the Central government to give directions to the RBI, after consultation with the Governor of the central bank, as it may consider necessary in the public interest. “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,” says the Section.

“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.  2[(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 his 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.”

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RBI chief to resign?

While all the tug of war goes on, reports have surfaced saying that the RBI governor is likely to resign from his post. Well reports of invoking Section 7 has come as shocker not only to RBI’s top bosses but also to the people of the nation as no government since Independence has invoked Section 7 of the Reserve Bank of India.

(Inputs from Agencies)

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Published on: Thursday, November 01, 2018, 12:09 PM IST
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