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[https://rbi.org.in/History/Brief_History.html rbi.org]

The Reserve Bank of India is the central bank of the country. Central banks are a relatively recent innovation and most central banks, as we know them today, were established around the early twentieth century.

The Reserve Bank of India was set up on the basis of the recommendations of the Hilton Young Commission. The Reserve Bank of India Act, 1934 (II of 1934) provides the statutory basis of the functioning of the Bank, which commenced operations on April 1, 1935.

The Bank was constituted to:

* Maintain reserves with a view to securing monetary stability and

* To operate the credit and currency system of the country to its advantage.

The Bank began its operations by taking over from the Government the functions so far being performed by the Controller of Currency and from the Imperial Bank of India, the management of Government accounts and public debt. The existing currency offices at Calcutta, Bombay, Madras, Rangoon, Karachi, Lahore and Cawnpore (Kanpur) became branches of the Issue Department. Offices of the Banking Department were established in Calcutta, Bombay, Madras, Delhi and Rangoon.

Burma (Myanmar) seceded from the Indian Union in 1937 but the Reserve Bank continued to act as the Central Bank for Burma till Japanese Occupation of Burma and later upto April, 1947. After the partition of India, the Reserve Bank served as the central bank of Pakistan upto June 1948 when the State Bank of Pakistan commenced operations. The Bank, which was originally set up as a shareholder's bank, was nationalised in 1949.

An interesting feature of the Reserve Bank of India was that at its very inception, the Bank was seen as playing a special role in the context of development, especially Agriculture. When India commenced its plan endeavours, the development role of the Bank came into focus, especially in the sixties when the Reserve Bank, in many ways, pioneered the concept and practise of using finance to catalyse development. The Bank was also instrumental in institutional development and helped set up insitutions like the Deposit Insurance and Credit Guarantee Corporation of India, the Unit Trust of India, the Industrial Development Bank of India, the National Bank of Agriculture and Rural Development, the Discount and Finance House of India etc. to build the financial infrastructure of the country.

With liberalisation, the Bank's focus has shifted back to core central banking functions like Monetary Policy, Bank Supervision and Regulation, and Overseeing the Payments System and onto developing the financial markets.

[http://epaperbeta.timesofindia.com/Article.aspx?eid=31808&articlexml=A-bank-central-to-monetary-policy-22082016013031 ''The Times of India'']

'''Which was India's first central bank?'''

The first central bank was the Imperial Bank of India formed in 1921 by merging the Presidency banks. The bank was further enlarged by the merger of several banks owned by princely states like Jaipur, Mysore and Patiala.

The Imperial Bank of India was supposed to perform three functions -commercial banking, central banking and banker of the government. By 1930, there were 1,258 banking institutions in the country registered under the Companies Act. Of these, the Imperial Bank was the most dominant.The global economy was passing through the Great Depression and this resulted in the failure of many banks in India as well. Various committees set up to study the Indian banking system recommend ed the formation of a central bank which was free from commercial banking. In most modern economies, central banks were formed largely to tackle the failure of unorganised banking by enforcing regulatory safeguards.

'''When was the Reserve Bank of India formed?'''

The bank was formed in 1935 by the Reserve Bank of India Act, 1934. The objectives included being the banker of the government and other banks, to maintain the exchange ratio and to regulate issue of bank notes. The overall objective of the bank was to secure monetary stability.

The bank formulates, implements and monitors India's monetary policy. It monitors and regulates the financial system through prescribing broad parameters of banking operations to ensure public confidence in the system and protect depositors' interests.The bank also manages foreign trade and monitors foreign exchange reserves. It is the only authority that has the right to issue or destroy currency .

'''How is the bank governed?'''

Like other central banks, the RBI too is an independent entity within the government.It is governed by a central board of directors appointed by the government according to the Reserve Bank of India Act. The board is appointed for four years with a governor and not more than four deputy governors as official directors. There are also 10 directors nominated by the government, two government officials and four directors -one each from local boards -who act as non-official directors.

=Reserve Bank of India Act of 1934=

==What is Section 7 of the Reserve Bank of India Act of 1934==

[[File: Sec 7 of the Reserve Bank of India Act of 1934.jpg|Sec 7 of the Reserve Bank of India Act of 1934 <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F10%2F31&entity=Ar00501&sk=13998587&mode=text  Mayur Shetty, Will govt invoke Sec 7 for 1st time if RBI logjam persists?, October 31, 2018: ''The Times of India'']|frame|500px]]

''Sec 7 of the Reserve Bank of India Act of 1934''

No government has invoked Section 7 of the Reserve Bank of India Act of 1934 in the central bank’s 83-year history.

It is seen as an instrument of last resort, a direct order from the government of the day to the central bank to carry out its wishes (see graphic, ‘In Public Interest’).

The government is learned to have recently initiated a consultative process with the RBI in three areas of concern – power sector loans, ‘prompt corrective action’ (PCA), and special dispensation for micro-small and medium enterprises (MSMEs) – and while doing so, mentioned Section 7, without actually invoking it. The Section says, “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.”

The government’s move is significant as such a consultative process could potentially lead to the government issuing directions should the logjam persist. The issue of invoking Section 7 first came up during a hearing before the Allahabad high court in a case filed by the Independent Power Producers challenging the RBI’s February 12 circular which did away with all restructuring schemes for loans in default. After the counsel for RBI pointed out that legally the government could issue directions to the central bank, the court in its ruling in August said such a move could be considered.

A senior official in the government said there has so far been no move to invoke Section 7. Another person, when asked, said, “Communication between the government and the central bank is sacrosanct and cannot be disclosed.”

The government wants norms for non-performing assets in the power sector – which currently require companies to be referred to bankruptcy courts -- to be relaxed. Once admitted, the companies have to be either sold or liquidated.

Its concern about 'prompt corrective action' is that the classification of PCA has placed lending and expansion curbs on 11 public sector and one private bank, which it believes is choking fund flows to several sectors. The government has also been worried about the fate of MSMEs, and is keen that the definition of bad loans be softened.

A broader concern is about the liquidity situation which has taken a turn for the worse after a series of defaults by IL&FS in September. The defaults have had a cascading impact — MFs that had invested in IL&FS debt were hit, corporates who had put shortterm funds in MFs turned cautious, and the funds themselves turned cautious about putting money in financial companies.

=Central board of directors=

The Reserve Bank's affairs are governed by a central board of directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India Act.

• Appointed/nominated for a period of four years

♣ Full-time : Governor and not more than four Deputy Governors

♣ Nominated by Government: ten Directors from various fields and two government Official

♣ Others: four Directors - one each from four local boards

Functions : General superintendence and direction of the Bank's affairs

===The Board, as in 2018===

[[File: The RBI’s Central board of directors, as in 2018.jpg|The RBI’s Central board of directors, as in 2018. <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F12%2F11&entity=Ar00314&sk=1E299772&mode=text  Sidhartha, December 11, 2018: ''The Times of India'']|frame|500px]]

''The RBI’s Central board of directors, as in 2018''

• One each for the four regions of the country in Mumbai, Calcutta, Chennai and New Delhi

• consist of five members each

• appointed by the Central Government

• for a term of four years

Functions : To advise the Central Board on local matters and to represent territorial and economic interests of local cooperative and indigenous banks; to perform such other functions as delegated by Central Board from time to time.

==Why RBI is not comfortable with active boards==

[[File: Industrialists on RBI Board.jpg|Industrialists on RBI Board <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F11%2F06&entity=Ar02101&sk=3514EE46&mode=text  Mayur Shetty, Why RBI is not comfortable with a more active board, November 6, 2018: ''The Times of India'']|frame|500px]]

An active board seeking a say in bank regulation has thrown up questions about conflict of interest, given the presence of industrialists on the board of the Reserve Bank of India (RBI).

Traditionally, the RBI board had a strong presence of eminent industrialists like Ratan Tata, N R Narayana Murthy and Azim Premji. It has also included chiefs of highly indebted groups like K P Singh of DLF and G M Rao of the GMR Group. However, there was never any conflict of interest as the minutiae of bank regulation or monetary policy never came up to the board. That’s because, until now, the RBI board only gave a broad direction that the central bank should take.

But in the October 23 board meeting, some directors are understood to have turned vocal on a few RBI regulations. According to a senior former central banker, there would be conflict of interest if these businessmen had advance information of RBI’s regulations. He was reacting to reports that some directors wanted the RBI central board to play a more active role and deliberate on regulations. There is talk of the board wanting to push through five decisions, which includes issues such as regulatory forbearance and allowing weak banks to lend, in the forthcoming RBI board meet on November 19.

Sources close to the central bank also point out that, unlike boards constituted under The Companies Act, the RBI Act 1934 grants the governor with powers that are concurrent with the board. They refer to clause 3 of the hotly debated Section 7 of the RBI Act. While the first clause confers powers on the government to give directions to the RBI, the third part indicates that the governor shares power.

This clause 3 states, “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.” A source said, “The choice of the words ‘shall also have powers’ indicates that these are concurrent with the board.”

According to sources, the powers of the governor are reiterated in the Reserve Bank of India, General Regulations, 1949, which also addresses the issue of conflict of interest between board decisions and individual interests of directors. “You can imagine what would happen if an issue like the February 12 circular on recognition of non-performing assets came up to a board that included owners of highly indebted companies,” a source said.

[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F10%2F30&entity=Ar02204&sk=41DBD133&mode=text  Source: Central bank websites, agencies, WSJ, How other central banks function, October 30, 2018: ''The Times of India'']

[[File: The US government’s frictions with its central bank under President Trump.jpg|The US government’s frictions with its central bank under President Trump <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F10%2F30&entity=Ar02204&sk=41DBD133&mode=text  Source: Central bank websites, agencies, WSJ, How other central banks function, October 30, 2018: ''The Times of India'']|frame|500px]]

'''The US Federal Reserve''': Like other central banks, the Fed is an independent government agency. It is accountable to the public and the US Congress. Members of the board of governors are appointed for staggered 14-year terms and the board chair is appointed for a four-year term. Elected officials and members of the administration are not allowed to serve on the board. The Fed does not receive funding through the congressional budgetary process. The financial statements of the Federal Reserve Banks and the board of governors are audited annually by an independent, outside auditor.

'''The Bank of England (BoE)''': The BoE is owned by the UK government. It has specific statutory responsibilities for setting policy rates, carried out within a framework set by government but free from day-to-day political influence. Parliament gives specific goals and responsibilities. The government sets the target — which is 2%. A panel meets to agree interest rate decisions eight times a year. There are other panels on other issues, which ensures that the financial system is working properly to serve UK households and businesses. The BoE is answerable to both parliament and the public.

'''European Central Bank (ECB)''': It manages the euro and implements monetary and economic policy for the EU. Probably the most independent of central banks, the ECB charter prevents it from backing any government. However, it is criticised as being non-independent because it is at the mercy of the governments of Europe’s creditor countries.

'''Bank of Japan''': It has a legal mandate to maintain price stability. The government is not allowed to sack the central bank governor or members of the board but parliamentarians have the right to appoint them. Bank regulation is done by the Financial Services Agency.

'''People’s Bank of China''': The Chinese central bank is subservient to the communist party and its national objectives. It is responsible for mainlining growth, price stability, currency stability and health of financial sector.

'''Central Bank of Argentina''': RBI deputy governor Viral Acharya used the example of the constitutional crisis in Argentina. The Cristina Fernandez-led government in 2010 attempted to raid the central bank’s reserves, resulting in bond yields shooting up and foreign investors exiting.

'''Turkey Central Bank''': The sharp depreciation in emerging market currencies was seen to have been triggered by the fall in the Turkish lira. The collapse of the lira has been attributed to Turkish president Recep Tayyip Erdogan taking control of Central Bank of the Republic of Turkey and preventing it from raising rates.

[http://epaperbeta.timesofindia.com/Article.aspx?eid=31808&articlexml=No-age-cap-fixed-rules-for-RBI-top-20062016017020 ''The Times of India''], June 20, 2016

'''Who can be an RBI governor?'''

In the past, candidates were shortlisted by the government, and the Prime Minister appointed the governor in consultation with the finance mi nister. On some oc casions, some of the candidates we re called for an in LEARNING formal interaction WITH THE TIMES with the finance mi nister (D Subbarao was appointed through this route) although the final decision was taken by the PM. Now, the government has tasked a committee headed by the Cabinet secretary to shortlist candidates and the final decision will be taken by PM Narendra Modi.

'''Is there an age cap or are some qualifications stipulated?'''

No, there is neither an age restriction nor qualifications are specified in the law. Governments have opted for those with understanding of overall economy , the financial sector as well as those familiar with th functioning of the government

'''What is the RBI governor' tenure?'''

The RBI Act allows the government to specify the term but the ? tenure cannot exceed five years, with a possibility of reappointe ment. In recent years, only S Venkitaramanan, who spent two years as RBI governor, has had a shorter stint than Raghus ram Rajan.

In the past, chiefs of other regulatory bodies -including insurance, pension and Sebi -have been shortlisted by search committees. But this will be the first time the RBI governor will be appointed similar ly, signalling a major shift in government stance and ending the special treatment given to central bank chiefs. The decision to route the RBI governor's appointment through the financial sector regulatory appointment search committee (FSRASC) seems intended to cool speculation over Raghuram Rajan being considered for a second term.

The FSRASC, set up in 2015, had interviewed candidates for Sebi chief. In February 2016, the government ignored its recommendation and reappointed U K Sinha for a year. A part from the cabinet secretary, the committe comprises additional principal secretary to PM P K Mishra, who is a permanent government nominee, and three outside experts -Rajiv Kumar of Centre for Policy Research, Manoj Panda of the Institute of Economic Growth and Bimal N Patel from Gujarat National Law University. A finance ministry representative will be a special invitee. The panel's recommendation will be sent to the appointments committee of cabinet headed by the PM, which will decide on the governor.

Going by the current thinking in official circles, a second term for Rajan could well be on the cards despite occasional reports that put him at cross-purposes with the government over issues like rate cuts or `Make in India'. At the same time, the government does not seem keen to imbue the appointment with a greater profile of attention. The committee route would be in sync with PM Narendra Modi's remark that the appointment is an “administrative decision“ that will be taken closer to September when Rajan's term ends.

The committee's recomendation for RBI deputy governor was a break from past practice as previously, the head of the regulatory body presided over the selection committee. This time around, the RBI governor was a member of the FSRASC.

=Salary and perquisites of RBI governors=

[http://timesofindia.indiatimes.com/business/india-business/RBI-governor-Urjit-Patel-gets-Rs-2-lakh-a-month-pay-no-support-staff-at-home/articleshow/55788608.cms  December 4, 2016: The Times of India]

''' ''RBI governor Urjit Patel gets Rs 2 lakh a month pay, no support staff at home'' '''

RBI governor Urjit Patel gets a little over Rs 2 lakh as salary and has not been provided with any support staff at his residence, the central bank has said.

Patel, who took over as RBI Governor in September+ , is presently in possession of the bank's flat (Deputy Governor's flat) in Mumbai, it said. "No support staff has been provided to the present Governor, Urjit Patel at his residence. Two cars and two drivers have been provided to the present Governor," RBI said in reply to an RTI query.

The bank was asked to provide details of remuneration given to former RBI governor Raghuram Rajan+ and incumbent Patel.

For the month of October — the first full month Patel was in office as Governor — Patel got Rs 2.09 lakh as his salary, the same amount drawn by Rajan as his August's salary. Rajan demitted office on September 4, and was given Rs 27,933 as remuneration for four days.

Rajan was provided with three cars and four drivers. "One caretaker and nine maintenance attendants were posted as supporting staff in the bungalow provided by the bank to the former Governor Raghuram Rajan at Mumbai," RBI said.

The Centre has recently declined to share details on appointment of Patel and other candidates shortlisted for the top post in the central bank saying these are "cabinet papers" and cannot be made public. Patel was on August 20 named as RBI's Governor to succeed Rajan.

==2017, pay hike: Rs 2.5 lakh/month==

[http://epaperbeta.timesofindia.com/Article.aspx?eid=31808&articlexml=RBI-governors-pay-hiked-to-Rs-25L-per-03042017008029  RBI governor's pay hiked to Rs 2.5L per mth, April 3, 2017: The Times of India]

RBI governor Urjit Patel and his deputies have got a big pay hike with the government more than doubling their basic salary to Rs 2.5 lakh and Rs 2.25 lakh per month, respectively .

The “basic pay of the governor and deputy governors“ have been revised retrospectively with effect from January 1, 2016 and marks a huge jump from Rs 90,000 basic pay so far drawn by the Governor and Rs 80,000 for his deputies. Still, their salaries are much lower than the top executives of various banks regulated by the RBI.The RBI, however, did not disclose the new gross pay for Patel and his deputies following the revision in basic pay.

=Governors of the Reserve Bank of India=

==1935- 2013: complete list==

[http://epaper.timesofindia.com/Default/Scripting/ArticleWin.asp?From=Archive&Source=Page&Skin=TOINEW&BaseHref=CAP/2013/08/07&PageLabel=22&ForceGif=true&EntityId=Ar02206&ViewMode=HTML The Times of India] 2013/08/07

[[File: rbiGova.png||frame|left|500px]]

[[File: Governors of RBI since 1935.jpg|Governors of RBI since 1935; Graphic courtesy: [http://epaperbeta.timesofindia.com/Gallery.aspx?id=21_08_2016_017_017_001&type=P&artUrl=GOVERNORS-IN-LIBERALIZED-INDIA-21082016017017&eid=31808 ''The Times of India''], August 21, 2016|frame|500px]]

[[File: Interest rates, inflation and GDP growth during the tenures of RBI Governors, 1990-April 2016.jpg| Interest rates, inflation and GDP growth during the tenures of RBI Governors, 1990-April 2016; Graphic courtesy: [http://epaperbeta.timesofindia.com/Gallery.aspx?id=16_04_2016_021_021_010&type=P&artUrl=Rate-cut-depends-on-raindrops-Rajan-16042016021021&eid=31808 ''The Times of India''], April 16, 2016|frame|500px]]

[[File: Rates during the regime of RBI governor Mr. Raghuram Rajan, September 2013-September 2016.jpg|Rates during the regime of RBI governor Mr. Raghuram Rajan, September 2013-September 2016; Graphic courtesy: [http://epaperbeta.timesofindia.com/Gallery.aspx?id=10_08_2016_027_050_009&type=P&artUrl=Rates-unchanged-but-Rajans-cash-promise-trims-yields-10082016027050&eid=31808 ''The Times of India''], August 10, 2016|frame|500px]]

Subbarao, man who fell into cauldron of woes

Surojit Gupta | TNN

[http://epaper.timesofindia.com/Default/Scripting/ArticleWin.asp?From=Archive&Source=Page&Skin=TOINEW&BaseHref=CAP/2013/08/07&PageLabel=22&EntityId=Ar02205&ViewMode=HTML The Times of India] 2013/08/07

New Delhi: For Duvvuri Subbarao it was baptism by fire when he took over the reins of the Reserve Bank of India nearly five years ago.  

But this was short-lived. The economy was buffeted by stubborn inflation, including double-digit food inflation, prompting the central bank to focus on taming prices. It raised rates furiously, almost 13 times, to throttle inflation.

Of late, frosty ties between RBI and the finance ministry have dominated discussions. Critics slammed the policy to tackle inflation while the government sometimes expressed disappointment. Finance minister P Chidambaram, who is careful with words, appeared disappointed as RBI left interest rates unchanged.

Adding to Subbarao’s problems, the fiscal situation deteriorated. Growth slowed. Scandals and policy missteps, such as retrospective taxes forced investors to the sidelines. Subbarao bravely continued calling for action on the fiscal front to enable him to slash interest rates. That didn’t happen until Chidambaram stepped in as finance minister in September. His reform initiatives helped restore the health of public finances. RBI obliged with a rate cut. But this came with a caveat on the ch a l l e n g e s on the prices front.

As things appeared to settle down, the crisis on the currency front emerged, prompting RBI to work towards taming the volatile forex market.

Some economists said the RBI under Subbarao misjudged the signals. “You cannot separate two or three issues, one of which is that when it comes to inflation and growth, both monetary and fiscal policies matter. In my assessment, the country had the most unfortunate fiscal policies compounded by the most unfortunate monetary policy,” economist Surjit Bhalla said. “The RBI misjudged the economy, determinant of inflation, determination of growth and determinant of the exchange rate.”

He said the RBI under Subbarao had misjudged food inflation and hiked rates. “What could’ve been a virtuous cycle has been turned into a vicious cycle,” Bhalla said. Not all would agree with such a harsh summation.

===2016-18===

[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F08%2F27&entity=Ar01714&sk=C1069BC6&mode=text  Mayur Shetty, After 2 years as RBI governor, Patel nears bad debt endgame, August 27, 2018: ''The Times of India'']

[[File: The first two years of Urjit Patel’s innings as the Governor of the RBI- Economic indicators 2016-18.jpg|The first two years of Urjit Patel’s innings as the Governor of the RBI- Economic indicators 2016-18 <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F08%2F27&entity=Ar01714&sk=C1069BC6&mode=text  Mayur Shetty, After 2 years as RBI governor, Patel nears bad debt endgame, August 26, 2018: ''The Times of India'']|frame|500px]]

When Urjit Patel was appointed the 24th governor of the Reserve Bank of India (RBI) in August 2016, TOI had cautioned those who saw him as a pro-administration governor, pointing out that he was an inflation hawk.

As he completes two years in office next week (he took over from the previous RBI governor Raghuram Rajan on September 4, 2016), Patel has demonstrated that he is no pushover. Whether it is interest rates, non-performing assets (NPAs) or the issue of public sector bank regulation — Patel has not shied away from locking horns with the government.

While his first year as the head of the central bank was overshadowed by the events following demonetisation, Patel’s tenacity came to light during his second year. That was when the RBI asked lenders to take the who’s who of India Inc to court and sell their businesses under the newly-introduced Insolvency and Bankruptcy Code. These included corporate groups like Essar, Videocon and Bhushan Steel.

A year ago in a speech titled ‘Resolution of stressed assets: Towards the endgame’, Patel had highlighted the challenges ahead, “We all must realise that it will be a long haul before the intended objectives are fully achieved... but as long as the endgame is a desirable goal, these should be worth it for placing the private economy structurally on a path of sustained growth.”

When it comes to setting of interest rates, the central bank is perhaps more independent under Patel then it was ever before. This is because Patel’s regime in the RBI coincided with the constitution of the monetary policy committee (MPC), which had a mandated objective to keep inflation at around 4%. Incidentally, the MPC was constituted based on recommendations made by a committee headed by Patel as deputy governor.

Patel’s comeback was equally strong. In one of his rare speeches, the governor said, “Success has many fathers, failures none. Hence, there has been the usual blame game, passing the buck, and a tonne of honking.” He then listed seven legislative provisions that ensured the RBI did not have much of a say in public sector banks. The finance ministry’s pointed rebuttal brought to light the stress in the relationship.

Patel, whose signatures appear in more currency notes than any other RBI governor, is the most low-profile central banker with only eight public speeches in two years. The final year of his term, being an election year, will be even more crucial as it will also bring him into the stressed loan endgame that he speaks about.

[[Category:Pages with broken file links|THE RESERVE BANK OF INDIA]]

[[File: The RBI’s reserves, 2013-18.jpg|The RBI’s reserves, 2013-18 <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F11%2F21&entity=Ar02914&sk=1554FE66&mode=text  November 21, 2018: ''The Times of India'']|frame|500px]]

'''Where do RBI’s surplus funds come from?'''

The Contingency Fund (CF) is a specific provision meant for meeting unexpected contingencies that arise from RBI’s monetary policy and exchange rate operations. In both cases, RBI intervenes in the relevant markets to adjust liquidity or prevent large fluctuations in currency value. The CF in 2017-18 was Rs 2.32 lakh crore, or 6.4% of assets. The CGRA and CF put together constituted 26% of assets (and because in a balance sheet assets and liabilities must by definition match, also the same proportion of its liabilities).

This represents the amount RBI transfers to the government. There are two unique features about RBI’s financial statements. It is not required to pay income tax and has to transfer to the government the surplus left over after meeting its needs. RBI’s income comes mainly through interest on the securities it holds and in 2017-18 the largest component of expenditure was a provision of about Rs 14,200 crore it made to the contingency fund.

Obviously, the larger the provision made to CF, the lower the surplus. Beginning 2013-14, RBI didn’t make a provision to CF for three successive years as a technical committee felt its “buffers” were more than enough. In the last two years, however, RBI has made provisions to CF. The adequacy of the current level of CF is one of the key issues likely to be debated extensively by the expert committee.

==2013-18: surplus transferred ==

[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F11%2F20&entity=Ar02210&sk=E802297C&mode=text  Pradeep Thakur, In last 5 yrs, RBI transferred 75% of its income as surplus, November 20, 2018: ''The Times of India'']

[[File: RBI's Balance Sheet, 2013-18.jpg|RBI's Balance Sheet, 2013-18 <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F11%2F20&entity=Ar02210&sk=E802297C&mode=text  Pradeep Thakur, In last 5 yrs, RBI transferred 75% of its income as surplus, November 20, 2018: ''The Times of India'']|frame|500px]]

While analysing the government’s finance account last year, the Comptroller and Auditor General studied RBI’s income, expenditure and surplus transferred to the Centre between 2013-14 and 2017-18 and found that out of its income of Rs 3.3 lakh crore, the central bank had transferred Rs 2.48 lakh crore. The highest payout was in 2015-16, when 83% of the RBI’s income was transferred to the Centre as surplus.

RBI’s reserves have been a bone of contention, with the government keen to increase the payout. What has added to the discord in recent years is the Economic Survey pointing out that RBI has higher reserves than other central banks.

In a speech last month, RBI deputy governor Viral Acharya had hit out at the government for seeking higher dividend and cited the example of Argentina, where a similar development took place eight years ago, to argue that the central bank’s autonomy should not be compromised. The issue was one of the key agenda items at the marathon board meeting of the RBI.

===Surplus capital, 2013-18===

[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2019%2F02%2F02&entity=Ar02900&sk=7D9EB8EA&mode=text  RBI’s forex sale profit to help bridge deficit, February 2, 2019: ''The Times of India'']

[[File: The Reserve Bank of India’s surplus capital, 2013-18.jpg|The Reserve Bank of India’s surplus capital, 2013-18 <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2019%2F02%2F02&entity=Ar02900&sk=7D9EB8EA&mode=text  RBI’s forex sale profit to help bridge deficit, February 2, 2019: ''The Times of India'']|frame|500px]]

The volatility in the foreign exchange and bond market is helping the government to bridge some of its fiscal deficit. The Reserve Bank of India (RBI) is understood to have made record profits from selling dollars in the foreign exchange market when the rupee came under pressure.

These profits are likely to be distributed to the government in the form of an interim dividend, which will be considered in the next board meeting of the central bank.

Economic affairs secretary Subhash Chandra Garg said on Friday that the government expects an interim dividend of Rs 28,000 crore from the RBI. This is in addition to the Rs 40,000 crore already received from the central bank during FY19, Garg said in an interaction with the media after the interim budget was announced.

The Rs 28,000-crore interim dividend will be transferred by the RBI before end March 2019. As a result, the interim dividend will help the government ease fiscal pressure as the money will come within the current financial year. The RBI, which follows a July-June financial year, paid about 63% higher dividend than the previous year (2016-17).

Meanwhile, the government has revised dividend or surplus of the RBI, nationalised banks and financial institutions to Rs 74,140 crore from Rs 54,817 crore estimated earlier in the Budget 2018-19. In the next year too, the RBI is expected to be a major contributor to the government’s revenues.

A panel headed by former RBI governor Bimal Jalan is looking at whether the central bank is holding surplus capital, which can be transferred to the government. The panel is expected to submit its report by end-March.

According to Care Ratings MD & CEO Rajesh Mokashi, dividends and profit will contribute highest (50%) to the non-tax revenue.

==2017: Demonetisation, printing of currency: RBI halves dividend ==

[http://epaperbeta.timesofindia.com/Article.aspx?eid=31808&articlexml=RBI-halves-dividend-to-govt-to-Rs-31k-11082017021025  Mayur Shetty, RBI halves dividend to govt to Rs 31k cr, August 11, 2017: The Times of India]

[[File: RBI dividend to government, 2013-17.jpg|RBI dividend to government, 2013-17; [http://epaperbeta.timesofindia.com/Article.aspx?eid=31808&articlexml=RBI-halves-dividend-to-govt-to-Rs-31k-11082017021025  Mayur Shetty, RBI halves dividend to govt to Rs 31k cr, August 11, 2017: The Times of India]|frame|500px]]

'''Demonetisation, Printing Of Currency Take A Toll'''

In a surprise announcement, the RBI said that it has halved its dividend payment to the government to Rs 30,659 crore for 2016-17 from nearly Rs 66,000 crore in each of the previous two years. The lower dividend is due to huge expenses borne by the RBI by way of interest payment to banks as part of its liquidity management exercise and in printing notes following demonetisation.

The dividend amount was decided by the central board of directors, which met to finalise accounts for the year ended June 2016.The board would have also finalised how the central bank deals with the demonetised currency notes that were not turned in before June 2017. However, the RBI is yet to divulge details on whether it has extinguished the currency which has not been deposited.

The minister of state for finance Arun Meghwal had earlier said that it costs between Rs 2.87 and Rs 3.09 to print the new Rs 500 note and Rs 3.54-3.77 for a Rs 2,000 note. Given these numbers, it would have cost the RBI over Rs 13,000 crore to print fresh currency notes during demonetisation. This is almost thrice the Rs 3,421 crore the RBI spent on printing notes in the previous year. According to economists, when the macro fundamentals are so und, the RBI ends up with weak earnings and, conversely, when the country's fundamentals are under strain, the central bank generates exceptional gains. This is because at times of stress, the RBI tightens liquidity and makes windfall profits lending to banks at high rates.But when the rupee is strengthening, the central bank loses money by buying a falling dollar. The biggest cost to the RBI by far, when the country is facing a problem of plenty, is the cost of impounding surplus liquidity. Banks are sitting on sur plus funds due to absence of credit demand. Soumya Kanti Ghosh, chief economist, SBI, said, “Credit growth has decelerated by Rs 1.5 lakh crore in current fiscal -a historic low.“ He added that given surplus funds, SBI, Axis Bank and Bank of Baroda have reduced the savings bank rate to keep the lending rate low.

Since November, banks have been awash with surplus liquidity thanks to cash being deposited with them.While most of these were slowly withdrawn, a large chunk continued to remain with banks. According to dealers, the surplus liquidity with banks has risen to Rs 3 lakh crore as compared to the RBI's target range of Rs 1 lakh crore.

[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F08%2F09&entity=Ar02101&sk=6468B053&mode=text  At ₹50,000cr, RBI gives govt 63% more dividend, August 9, 2018: ''The Times of India'']

The RBI has transferred a surplus of Rs 50,000 crore to the central government, which is 63% more than last year’s dividend of Rs 30,659 crore. This payout is also 91% of the Rs 54,817-crore dividend income that the government budgeted from the RBI, nationalised banks and other financial institutions in its Budget 2018.

It is likely that the central bank would have generated a higher surplus arising out of foreign exchange operations. The RBI has sold foreign currency assets worth over $20 billion this year, which is reflected in the decline in forex reserves from nearly $400 billion on March 30, 2018 to around $379 billion. The foreign currency assets sold were worth Rs 1.40 lakh crore and would have added to the RBI’s rupee balance sheet and enabled it to pay a higher dividend.

“The central board of directors of the RBI, at its meeting held on August 8, approved the transfer of surplus amounting to Rs 500 billion (Rs 50,000 crore) for the year ended June 30, 2018 to the government,” the central bank said in a statement.

Unlike other financial institutions, the RBI follows a July-June financial year. The dividend payout had shrunk last year as the RBI had to spend a lot of money in printing of new currency notes following demonetisation in November 2016.

==2020; 2012-2020==

[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2020%2F08%2F15&entity=Ar03101&sk=E5F0328B&mode=text  RBI transfers ₹57,128 crore surplus to govt for 2019-20, August 15, 2020: ''The Times of India'']

''' In Line With Budget, But Won’t Make Up For Revenue Shortfall '''

The Reserve Bank of India (RBI) announced a dividend payout of Rs 57,128 crore to the government, in line with Budget expectations but not enough to make up for revenue shortfalls from other heads. This year’s dividend is not comparable to last year’s surplus transfer of Rs 1,76,051 crore, which included a one-time transfer of extra reserves in line with the recommendation of the Bimal Jalan-headed committee.

The dividend was declared in the 584th meeting of the RBI’s central board. Besides approving accounts and maintaining a 5.5% contingency risk buffer, the board also discussed setting up of an innovation hub. Before adoption of the Jalan committee recommendations, the buffer had stood at 6.8%.

In the Union Budget 2020, the government had provisioned Rs 89,600 crore in dividend from the RBI, state run banks and financial institutions. Of this, the RBI was expected to contribute Rs 60,000 crore. Nationalised banks will not be declaring any dividend this year as the RBI has barred them from doing so in order to conserve capital to cover defaults arising out of the Covid-19 crisis.

“The overall balance sheet of the central bank had expanded close to 30% in the RBI accounting year. Such rapid expansion would obviously limit the amount of seigniorage surplus to the government. Also, at the current rate, the total capital of the RBI including reserves is ahead of the 20.8-25.4% recommended by the Jalan committee that the central bank needs to maintain,” said SBI chief economist Soumya Kanti Ghosh.

According to Ghosh, the government cannot look to the central bank to raise funds. “The surprise to the market was the rise in inflation of close to 7%. This is because of the shift in consumption from goods and services to food items. This will make it difficult for the RBI to cut rates. Now it is for the government to take action,” said Ghosh.

Bankers say that RBI’s revenue generation is highest when there is volatility in the financial markets — either bonds or foreign currency. During times of rupee volatility, the RBI ends up selling billions of dollars of foreign currency assets, which generate huge profits because of the weaker rupee. Similarly, when there is volatility in the bond markets, the RBI makes money through its open market operations.

[[Category:Economy-Industry-Resources|R

=Gold reserves=

==Purchases in 2009, 2018==

[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F09%2F04&entity=Ar02007&sk=B0770925&mode=text  RBI boosts forex kitty with first gold buy in 9 years, September 4, 2018: ''The Times of India'']

The Reserve Bank of India (RBI) has bought nearly 8.5 tonnes of gold in financial year 2017-18, the first purchase of yellow metal by the central bank in almost nine years, a report said.

The RBI held just over 566 tonnes of gold as on June 30, 2018, compared with 558 tonnes as on June 30, 2017, according to the central bank’s latest annual report for 2017-18.

The central bank had last purchased gold in November 2009, when it had bought 200 tonnes of yellow metal from the International Monetary Fund (IMF).

Of over 566 tonnes of gold reserves, about 292 tonnes is held as backing for notes and is shown as an asset of the issue department, and the balance 274 tonnes is treated as an asset of the banking department.

The value of gold held as asset of banking department rose by 11.1% to Rs 69,674 crore as on June 30, 2018, from Rs 62,702 crore as on June 30, 2017.

This increase was primarily on account of depreciation of rupee as against the dollar and the addition of nearly 8.5 tonnes of gold during the year, the RBI’s annual report said.

[[File: The RBI’s Gold reserves, 2014-19.jpg|The RBI’s Gold reserves, 2014-19 <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2020%2F03%2F04&entity=Ar02505&sk=04FB88CD&mode=image  March 4, 2020: ''The Times of India'']|frame|500px]]

'''See graphic''':

'' The RBI’s Gold reserves, 2014-19 ''

[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F11%2F05&entity=Ar02504&sk=671ADF05&mode=text  November 5, 2018: ''The Times of India'']

A country's central bank and its government may not always see eye to eye — the latest rift between the RBI and the Centre is a case in point. But what makes a central bank essential to a country's economy, and what kind of power does it enjoy?

'''Can an economy work without a central bank?'''

'''What is the role of a central bank?'''

Among the important roles of a central bank is to control the cost of money by changing interest rates. This role itself gives it immense power to stimulate or slow the economy. Apart from this, the central banks — in our case Reserve Bank of India — formulate, implement and monitor the country’s monetary policy. It monitors the financial system by prescribing broad parameters of banking operations to ensure the public has confidence in the system and protects depositors’ interest.

The bank also monitors foreign exchange reserves. It is the only authority that has the right to issue or destroy currency in circulation. The central bank also does merchant banking for the government as well as other banks.

'''How independent is the RBI?'''

Like other central banks, RBI is an independent entity within the government. It is governed by a central board of directors appointed by the government according to the Reserve Bank of India Act. The board is appointed for four years with a governor and up to four deputy governors. There are 10 other directors nominated by the government, two government officials and four non-official directors from local boards. There are also four local boards in Mumbai, Kolkata, Chennai and New Delhi to advise the central board on local matters. Local board members are nominated by

'''Where is the most powerful central bank?'''

While it controls the world’s largest economy, US's Federal Reserve Bank also issues treasury bills to raise money to finance spending. These US securities are bought by other nations and their value is based on the price of the US dollar. If the Fed lowers interest rate and makes dollar cheaper to borrow, the pinch will be felt by all other economies. Similarly, a stronger dollar will benefit countries that hold US securities.

==1935-2016: Govt. vs. the RBI==

[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F11%2F03&entity=Ar00507&sk=05B1245C&mode=text  Govt vs RBI: Top FinMin man mocks dy governor, November 3, 2018: ''The Times of India'']

[[File: 1935-2016- tiffs between the govt. and the RBI.jpg|1935-2016: tiffs between the govt. and the RBI <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F11%2F03&entity=Ar00507&sk=05B1245C&mode=text Govt vs RBI: Top FinMin man mocks dy governor, November 3, 2018: ''The Times of India'']|frame|500px]]

Hostilities between the Modi government and the Reserve Bank of India remained at heightened levels with a top bureaucrat taking to social media on Friday morning to mock a recent speech of deputy governor Viral Acharya. Hours later, the RBI uploaded a speech another deputy governor, N S Vishwanathan, gave at XLRI Jamshedpur earlier this week. In his speech, Vishwanathan attacked the government’s arguments for easing capital requirements, saying that it would result in banks being strong only in a “make-believe” manner.

Economic affairs secretary Subhas Chandra Garg, the finance ministry’s point person for managing ties with the RBI, fired the first salvo when he took aim at Acharya’s comment that “governments that do not respect central bank independence will sooner or later incur the wrath of financial markets”.

'''RBI dy guv against govt’s bid to push bank credit'''

Rupee trading at less than 73 to a dollar, Brent crude below $73 a barrel, markets up by over 4% during the week and bond yields below 7.8%. Wrath of the markets?” economic affairs secretary Subhas Chandra Garg tweeted on Friday.

Ironically, Garg’s very public dig at governor Urjit Patel’s hand-picked deputy came just two days after the finance ministry issued a carefully-worded statement that among other things signaled its displeasure with the RBI for airing its differences with the government.

Vishwanathan, who unlike Acharya is a career central banker, appeared to be at odds with the government’s push to accelerate bank credit when he indicated that higher growth in lending was not desirable. “It may be noticed that in the past, high levels of credit growth due to ‘supply push’ have resulted in high corporate leverage and consequent NPAs in the banking system,” he said.

“We must guard against any push for dilution of standards in the name of aligning them with international benchmarks because that will be cherry-picking and will result in our banks being strong in a make-believe sense and not in reality.” This appeared to be a response to financial services secretary Rajiv Kumar’s statement last week that minimum common equity (CET) Tier I ratio as prescribed by RBI stands at 5.5% as against 4.5% under Basel III norms. A relaxation of the capital requirement to Basel III levels would enable bank to lend up to Rs 6 lakh more.

According to Vishwanathan, international capital norms have been designed based on internationally observed recovery rates. However, the loss given defaults are far more than those observed internationally. He also shot down arguments that some defaults are caused by external circumstances and that regulations should treat them differently based on the reasons behind them. “This is a fallacy. There are two issues here: recognition and resolution. The recognition of default or accounting for deterioration in the quality of asset should be independent of the reasons for such default or deterioration.”

[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F12%2F11&entity=Ar02013&sk=A0864585&mode=text  Mayur Shetty, December 11, 2018: ''The Times of India'']

Public statements and disclosures by former governors — Y V Reddy, D Subbarao and Raghuram Rajan — in their writings have shown that there have been disagreements between the finance ministry and the RBI. But none of these disputes ever boiled over to a situation leading to the governor’s resignation.

According to central bank insiders, in the past governors have adopted a strategy of convince and compromise. Also, in the case of differences that arose during the 10-year UPA government, then Prime Minister Manmohan Singh, himself a former governor, helped in brokering peace between the RBI and the finance ministry. Even though previous governors have been bureaucrats, after coming to the RBI it is the chair that has taken over. Both Reddy and Subbarao have been extremely strong votaries of independence of the central bank after taking charge as governors. However, despite their independence they have acknowledged that the finance minister is senior to the RBI governor. In the case of Patel, his finance minister Arun Jaitley had taken a fourmonth break between May and August — a time when differences with the government were boiling over.

Additionally, in the past the differences were in the area of interest rates that has ceased to be an issue after the creation of the monetary policy committee (MPC), which coincided with the appointment of Patel.

Past governors have also managed to handle their differences with the finance ministry using their personal connection with finance ministry officials. Former governors, Reddy and Subbarao, were both former bureaucrats and had many friends in the finance ministry. Rajan, though not a bureaucrat, had worked in Delhi as chief economic adviser where he was prepped for the position of RBI governor.

There are some insiders who feel that the government’s choice of appointing outside economic experts as governor is a failed experiment as they have very little skin in the game.

==1956-57: Pt. Nehru vs. Sir Rau==

[https://timesofindia.indiatimes.com/india/nehru-letter-to-rbi-may-give-modi-government-ammunition-in-urjit-row/articleshow/66503739.cms  Sidhartha, November 5, 2018: ''The Times of India'']

The traditionally fraught nature of government-RBI relations goes back to the early days of the central bank when Sir John Osborne Smith resigned his governorship in 1937 following differences with the colonial government over interest and exchange rates.  

But it is Jawaharlal Nehru’s stormy exchanges with Sir Benegal Rama Rau, leading to his resignation as RBI governor, that has tickled the interest of people in the finance ministry – and may provide them with an effective counter to the Rahul Gandhi-led Congress’s attack on the government for undermining the autonomy of the central bank.

Rau, a civil servant, was the fourth governor of RBI and quit in January 1957 after seven and a half years in the saddle when Nehru sided with finance minister TT Krishnamachari and made it clear that RBI was part of “the various activities of the government”.  

In a letter to Rau, India’s first Prime Minister and Rahul Gandhi’s great-grandfather, wrote: “It (RBI) has to advise government, but it also has to keep in line with government.” He suggested the governor could resign if he thought that it was not possible to continue; Rau put in his papers a few days later.

“You have laid stress on the autonomy of the RBI. Certainly it is autonomous, but it is also subject to the central government’s directions…. Monetary policies must necessarily depend upon the larger policies which a government pursues. It is in the ambit of those larger policies that the RBI can advise. It cannot challenge the main objectives and policies of government,” asserted Nehru.

“When you talked to me I pointed out to you that it was for the central government to lay down policies and the RBI could not obviously have policies contrary to those of the central government. You agreed with this. And yet I find in your memorandum a different point of view,” he added.  

The RBI believed that TTK’s Budget proposal would effectively push up interest rates and forwarded a resolution of the central board. “The board requests the government to consult RBI in advance on all matters which significantly affect the monetary structure and policy,” the board said on December 12, 1956.

The same day, Nehru wrote to the governor pulling him up for his “improper approach” which was seen to be “agitational” against the Centre.  

Parallels are being drawn between the developments six decades ago and the current power tussle between the Centre and RBI – although in that instance, the central bank had gone out on a limb to criticise a Budget proposal whereas it’s the government that is now unhappy with the RBI for not taking on board its concerns about the economy.  

While most governments and the central bank have had differences over issues ranging from interest rates to regulations, the current rift has widened to an extent that the finance ministry has sought formal consultations with the governor in what is one step short of invoking Section 7 of the RBI Act, a provision that has never been used.  

The government has been pushing RBI to address its concerns related to providing support to non-banking finance companies, ravaged by the impact of defaults by IL&FS, in addition to addressing the credit needs of small businesses and reviewing the prompt corrective action (PCA) framework dealing with weak banks.

==2014, PM Manmohan Singh: Governor must heed govt==

[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F11%2F07&entity=Ar00308&sk=C7215202&mode=text  Guv must heed govt, Manmohan said in ’14, November 7, 2018: ''The Times of India'']

Recalling his tenure at the central bank, Singh says, “There is always give and take. I had to take the government into confidence. The governor of the Reserve Bank is not superior to the finance minister. And if the finance minister insists, I don’t see that the governor can refuse, unless he is willing to give up his job.”

Singh’s comments in the 2014 book are significant in the context of tensions between the Centre and RBI governor Urjit Patel amid heated commentary on the autonomy of the central bank. Singh says that after recording a divergent point of view, the governor can insist on directions from the government which would then need to be followed.

'''Singh speaks of Caparo, tension with then FM Pranab Mukherjee'''

Singh speaks of tensions with then finance minister Pranab Mukherjee over the move of the Londonbased Caparo group, in which business magnate Swraj Paul and his family held a majority share, to buy shares of Escorts Group. The UK-based business initiated the purchase of shares even before the RBI granted it permission. The RBI informed the government that it intended to reject Caparo’s application.

Asked about the case, Singh says, “Well, it was a situation that brought me in conflict with the government. I have given the view of the Reserve Bank, but said the government could always overrule it. This was a government scheme... Ultimately, it was resolved by the government giving a directive to the RBI.”

Singh makes it clear that the government would have liked the RBI to have acted on its own with regard to the application under a portfolio investment scheme for NRIs. But he said the RBI did not act until the explicit approval of the Cabinet Committee on Political Affairs was conveyed to the central bank. In a second case the book refers to, Singh had strong reservations over the application of the Bank of Credit and Commerce International to open a couple of branches in India. Permission was almost granted when Charan Singh was PM and was finally cleared by the Congress government in 1983.

The government, unhappy with the RBI’s power to issue bank licences, sought to take these powers away. “I sent my letter of resignation to Pranab Mukherjee and the PM. Later, I managed to persuade Mrs Gandhi that the Cabinet decision was not proper... they dropped the idea,” Singh says.

[[File: 2017, 2018- tensions between the Government and the RBI under Patel, a chronology; 2019, Nov- The RBI’s Central board of directors.jpg|2017, 2018: tensions between the Government and the RBI under Patel, a chronology <br/> 2019, Nov: The RBI’s Central board of directors <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F11%2F19&entity=Ar02902&sk=637D344F&mode=text  Sidhartha & Mayur Shetty  November 19, 2018: ''The Times of India'']|frame|500px]]

[[File: 10 flash points between Govt., RBI- 2017-18- Part I.jpg|10 flash points between Govt., RBI- 2017-18- Part I <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F10%2F30&entity=Ar02205&sk=E9E288E4&mode=image  October 30, 2018: ''The Times of India'']|frame|500px]]

[[File: 10 flash points between Govt., RBI- 2017-18- Part II.jpg|10 flash points between Govt., RBI- 2017-18- Part II <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F10%2F30&entity=Ar02205&sk=E9E288E4&mode=image  October 30, 2018: ''The Times of India'']|frame|500px]]

'''See graphics''':

''2017, 2018: tensions between the Government and the RBI under Patel, a chronology <br/> 2019, Nov: The RBI’s Central board of directors''

''10 flash points between Govt., RBI- 2017-18- Part I''

''10 flash points between Govt., RBI- 2017-18- Part II''

[[File: Friction between the Government and the Reserve Bank of India- Part I.jpg|Friction between the Government and the Reserve Bank of India- Part I <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F12%2F11&entity=Ar02003&sk=B8EACFF5&mode=image  December 11, 2018: ''The Times of India'']|frame|500px]]

[[File: Friction between the Government and the Reserve Bank of India- Part II.jpg|Friction between the Government and the Reserve Bank of India- Part II <br/> From: [https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F12%2F11&entity=Ar02003&sk=B8EACFF5&mode=image December 11, 2018: ''The Times of India'']|frame|500px]]

''Friction between the Government and the Reserve Bank of India- Part I''

''Friction between the Government and the Reserve Bank of India- Part II''

The Modi government was driven to consider the extreme step of invoking the never-before-used Section 7 of the RBI Act by central bank governor Urjit Patel’s reluctance to engage with stakeholders, according to highly placed sources in New Delhi. “He was scarce and unavailable to bankers, industry and market players even on matters of pressing concern. We were left with no choice. It was the only way we could bring the central bank to the table,” one person close to the development told TOI.

This confirms TOI’s exclusive report of Monday that tensions between the Patel-led RBI and the government had “come to a head” because the two were not only not able to see eye-to-eye on a host of issues, there had also “been an almost complete breakdown in communication” between them.

No government has invoked Section 7 of the Reserve Bank of India Act of 1934 in the central bank’s 83-year history. The Section says, “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 public interest.”

The finance ministry issued a carefully-worded statement saying the government and the RBI should be “guided by public interest and the requirements of the Indian economy”.

The government had hoped that RBI would go by the board’s collective view instead of the governor and his deputies charting the course of the financial sector by themselves. But the central bank — which also doubles up as regulator for banks and some market segments — did not seem to go by the view of the directors. Among the 18 directors on the central board, 11 are independent, with five RBI officials and two finance ministry bureaucrats making up the complete cast.

At last week’s board meeting, it was decided that four decisions that had been taken would be made public. However, RBI, which it now appears, had reluctantly acquiesced into the majority decision, decided otherwise and made no disclosure about the “unanimous” calls. The radio silence came as a surprise because the directors had left the meeting convinced that RBI officials were on the same page.

At the marathon meeting, which had over 20 items on the agenda, the RBI brass had suggested that the issues that could not be decided, would be taken up at next meeting. The meeting was to be held post-Diwali. Accordingly, Patel verged on announcing a specific date but was stalled in his tracks by a top RBI official, who suggested that it was time to wrap up. Thus, the date remained undecided.

The sudden power shift, with the board asserting itself and demanding a say, does not seem to have gone down well with the RBI brass, prompting howls of protest about government interference, said a top official who has been watching the evolving dynamics on Mint Road.

Sources said that at the last board meeting, financial services secretary Rajiv Kumar made a detailed presentation on the need to align Indian standards with global norms instead of stiffening them unnecessarily. The suggestion was an attempt to convince RBI to tweak its rules for capital and PCA. There were also complaints about liquidity shortage and Gurumurthy flagged the concern about inadequate fund availability for small businesses.

While most of the board, including corporate sector representatives agreed with the view, RBI representatives, supported by some of the independent directors, did not agree.

===2017, 2018: tensions under Patel ===

[https://epaper.timesgroup.com/Olive/ODN/TimesOfIndia/shared/ShowArticle.aspx?doc=TOIDEL%2F2018%2F10%2F29&entity=Ar00302&sk=ECF78AAA&mode=text  Sidhartha & Mayur Shetty, Tensions between Patel-led RBI, govt coming to a head?, October 29, 2018: ''The Times of India'']

In New Delhi and Mumbai’s corridors of power and money, the growing schism between the government and the RBI, and particularly its governor Urjit Patel, has been the subject of much talk since the early months of this year.

During this time, not only have the two not seen eye-to-eye on a host of issues, there has been an almost complete breakdown in communication between the government and RBI.

The simmering differences have now come to a head with RBI’s deputy governor Viral Acharya – who is widely seen to have been brought in by Patel from his professorial position in New York University – on Friday clearly hinting at government interference and emphasising the need for autonomy (TOI had front-paged his remarks in its October 27 edition).

The tension has triggered fevered speculation about Patel’s fate. Not only does he appear highly unlikely to get an extension beyond the threeyear term that ends next September, questions have arisen over his continuance. Patel did not respond to a message from TOI.

Some people in the NDA government have gone so far as to acknowledge in private that “even Raghuram Rajan was better than this” — and Patel’s predecessor didn’t leave on the best of terms.

''Govt, RBI clashes on at least 6 issues in ’18 alone''

A person in the NDA government told TOI a few months ago, “After Rajan, it’ll look bad if Patel is asked to go.” And people who have a sense of Patel’s thinking say that he knows the government won’t keep him on beyond his current term, so he doesn’t really care about being in its good books.

RBI’s February 12 circular on classification of non-performing assets and norms of loan restructuring was the next flashpoint. The government saw it as overly harsh, and indeed it drove all but two staterun lenders into the red.

In addition, the government has been insisting that RBI step in to provide relief to non-banking finance companies (NBFCs), which are grappling with a cash crunch after IL&FS defaulted on repayments. The central bank has refused to play ball.