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On face-off between RBI and govt, Raghuram Rajan backs central bank's cause

Former Reserve Bank of India Governor Raghuram Rajan says nation stands to benefit from an independent and robust RBI.

Reuters  |  MUMBAI 

Raghuram Rajan
Former RBI governor Raghuram Rajan

 Former of defended the central bank's call for greater autonomy from the government, saying ultimately the nation stands to benefit from an independent and robust RBI.

In an interview on 18 telecast on Tuesday Rajan said current rift between the and the government can be resolved if both sides respect each other's intent and autonomy.

"As far as possible, it is in the interest of the country that we respect the institutional autonomy of the Reserve Bank, as well as the traditions," Rajan, who was succeeded by current in September 2016, said.

Tensions between the two sides came to the fore last month after a scathing speech by a top blew the lid off a fractious dispute between the and the government of on issues ranging from lending curbs, more cash availability to the companies (NBFCs) to who controls the institution's reserves.

That speech by RBI Deputy roiled markets and prompted the government to issue a statement in support of the central bank's autonomy. Many viewed Acharya's comments as a sign that the RBI was pushing back hard against government pressure to relax its policies and reduce its powers ahead of a due by May.

Rajan, who is a professor at the in the U.S., commended Acharya for warning of risks stemming from government meddling of central But he also said the RBI could inject liquidity to ease any cash crunch at financial institutions, indirectly supporting the government's call for a liquidity window for NBFCs.

"If it's a liquidity problem, the can flood the market with liquidity or give the liquidity to specific private entities that are healthy, and are willing to lend to these other entities that are in trouble," Rajan, a former at said in the interview.

India's NBFCs, loosely known as shadow banks, are seeing a massive cash crunch after a major infrastructure funding company defaulted on a series of debt obligations in September triggering a sell-off in other financial institutions in the sector on worries over contagion risks.


First Published: Tue, November 06 2018. 12:22 IST