Arun Jaitley criticises RBI for ‘indiscriminate’ lending during UPA years

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New Delhi, Oct 30: Finance Minister Arun Jaitley on Tuesday added fuel to fire amid the ongoing conflict with the Reserve Bank of India (RBI) by saying that the regulator “looked the other way when banks gave loans indiscriminately during 2008-2014”. The finance minister was speaking at an event.
The conflict between the Modi government and the central bank reached a boiling point when deputy governor Viral Acharya, in a strongly-worded speech, recently said that undermining a central bank’s independence could be “potentially catastrophic”.
Notably, during the years in question, D Subbarao was the RBI governor until 2013, succeeded by Raghuram Rajan. Interestingly, the tussle between the RBI and the government is not new; it seems to have escalated under present governor Urjit Patel — a man who was handpicked by Narendra Modi government to replace Rajan.
Patel, who was given the mammoth task of implementing demonetisation just three months after he assumed power, was criticised heavily for his silence. However, soon Patel began giving signals that he was the “wise owl” of the mint street, who would be vigilant.
The government and the RBI seemed to have worked in the perfect sink initially: they formalised the inflation targeting and initiated efforts to address the non-performing assets problem. The relationship seems to have begun deteriorating following the massive PNB scam.
When the government tried to blame the regulator for failing to identify the brewing scam, Urjit Patel hit back saying that the RBI did not have enough powers to control the PSU banks.
With elections barely 6-7 months away, the government wants relaxation of rules to improve the lending capacity of even sich PSU banks to address the liquidity issue in NBFCs in the aftermath of crisis at IL&FS, while the RBI wants to continue with its restrictions — Prompt Corrective Action (PCA) and timely recognition and resolution of the NPAs.
Moreover, the conflict is arising on account of the government seeking higher dividends from the RBI and the contradictory view on revision in repo rates.