Amid instances of apparent differences between the government and the RBI, Acharya emphasised that undermining a central bank's independence is akin to committing a "self goal" for any government. "This is equally true of all other regulators", the finance ministry said in a statement.
Prompt corrective action (PCA): 11 public and 1 private bank in the country have been placed under what is called a PCA framework - rules the RBI puts in place for weaker banks - which bars lending by these banks, among other things, until they strengthen their capital base. Another report in the Times of India said the government had mentioned the rule to the RBI in consultations, without invoking it.
Section 7 of the RBI Act empowers the government to issue directions necessary for public interest to the RBI from time to time after consultation with the RBI governor.
After RBI deputy governor Viral Acharya fired the first salvo, the central bank's employees union on Monday launched an attack against the central government.
Last week, RBI deputy governor Viral Acharya lashed out at the Central government, saying it was trying to undermine the independence of the central bank.
Former Finance Minister P Chidambaram tweeted, "If, as reported, Government has invoked Section 7 of the RBI Act and issued unprecedented "directions" to the RBI, I am afraid there will be more bad news today".
The rift between the RBI Governor Urijit Patel and the Central government reportedly widened with Central Bank's Governor considering to resign from the post of the Governor.
The ongoing tussle between the Reserve Bank of India and the Modi Government took a new turn with several TV reports claiming that the RBI governor Urjit Patel might submit his resignation.
Finance Minister Arun Jaitley, meanwhile, has blamed the RBI's inability in identifying the problem of NPAs in Indian banks and lack of timely measures for the current crisis-like situation in the banking sector.
He added, "We did not invoke Section 7 in 1991 or 1997 or 2008 or 2013".
"Only the final decisions taken are communicated". Delivering the AD Shroff memorial lecture on Saturday, Acharya said governments that did not respect their central banks' independence would sooner or later incur the wrath of financial markets. The government, through these consultations, places its assessment on issues and suggests possible solutions. Section 7 deals with "management" of RBI.
The Centre has invoked Section 7 of the BI Act that empowers it to give instructions to the RBI Governor in order to act on certain issues.
The letter said, "Even the RBI board is being sought to be stuffed in a particular direction which would prompt the discerning people to look askance, and make it hard for RBI to frame policies".