New Delhi, October 31: The Modi government has reportedly invoked Section 7 of the RBI Act, a move which is being seen as a threat to the autonomy of the Reserve Bank of India by critics. Section 7 of the RBI Act, which has never been used before, empowers the government to issue directions to the governor to act on specific issues that the government considers serious and in public interest.

Exercising its powers under Section 7 of the RBI Act, the government has sent several letters to RBI governor Urjit Patel in recent week and directed him on issues such as lending to micro, small and medium enterprises (MSMEs) and liquidity for non-banking financial companies (NBFCs). The use of the provision is a result of a fallout between Patel and Union Finance Minister Arun Jaitley at a recent meeting. RBI Governor Urjit Patel May Resign After Arun Jaitley's Scathing Attack on Central Bank's 'Lending Spree': Report.

What Section 7 of RBI Act Says:

One of the key points of this provision is that the central government can issue directions to the RBI after holding consultations with the governor on issues that it considers in public interest. If the government issues direction(s), a Central Board of Director will then take reins of "the general superintendence and direction of the affairs and business of the Bank".

"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," the provision clarifies. RBI Governor Urjit Patel Seeks More Powers to Effectively Regulate PSBs.

RBI vs Modi Government Skirmish:

It all came out in public with a speech by RBI Deputy Governor Viral Acharya. Acharya had on October 26 pitched for autonomy in the banking regulator's functioning, warning that the market could make the government pay for eroding the central bank's independence. He had said that Patel suggested the theme of his speech.

A few days later, Union Finance Minister Arun Jaitley held the central bank responsible for the mountain of bad loans in the nation's banking system. Now, a report has surfaced which claimed Patel may quit his post.

(The above story first appeared on LatestLY on Oct 31, 2018 04:44 PM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).