Finance Minister Arun Jaitley on Tuesday chaired a face-to-face meeting with Reserve Bank of India Governor Urjit Patel and Deputy Governor Viral Acharya amid a long-simmering discord between the central bank and the government that is turning into a very public brawl.

The Financial Stability Development Council (FSDC) meeting was also attended by SEBI chairman Ajay Tyagi and secretaries of the Finance Ministry.

The rift between the government and the RBI surfaced after Deputy Governor Viral Acharya in a hard-hitting speech on Friday pitched for “effective independence” of the central bank.

Acharya had said governments that do not respect central bank’s independence would sooner or later incur the “wrath of financial markets, ignite an economic fire and come to rue the day they undermined an important regulatory institution”.

Acharya emphasised that undermining a central bank’s independence is akin to committing a “self-goal” for any government.

Delivering the AD Shroff Memorial Lecture, he said, “What matters is the effective independence with which these powers (vested in the Acts governing the RBI or any central bank) can be exercised in practice.”

Finance Minister Arun Jaitley earlier on Tuesday criticised the RBI for failing to check indiscriminate lending during 2008 and 2014 that has led to the present bad loan or NPA crisis in the banking industry.

“The central bank looked the other way when banks gave loans indiscriminately from 2008 to 2014,” Jaitley said.

The government of the day, he said, was pushing banks to lend which resulted in credit growth in a year shooting up to 31 per cent from the normal average of 14 per cent.

Jaitley said reforms undertaken by the government have led to significant improvement in revenues.
“My own estimation is that from 2014 to 2019, we will be almost very close to doubling our tax base,” he said.

The minister further said the Insolvency and Bankruptcy Code (IBC) is helping the banking sector in cleaning up bad loans. The fear of IBC has made defaulters approach their bank and clear their dues, he said.

Senior Congress leader and former finance minister P Chidambaram had earlier said that it would be better if the finance minister and the RBI governor meet in private and sort out issues.

(With PTI inputs)