INSUBCONTINENT EXCLUSIVE:
The RBI has often found itself on opposing sides to government officials this yearA growing rift between the Reserve Bank of India and the
government has been many months in the making.In the latest move, the RBI made its disagreement with authorities public in a hard-hitting
speech by Deputy Governor Viral Acharya on Friday -- which he said had the backing of Governor Urjit Patel -- defending the central bank's
Failure to do so would "incur the wrath of financial markets," he said.The government has yet to respond officially to the comments.From a
banking crisis to interest rates, the RBI has often found itself on opposing sides to government officials this year
Here are some of the top reasons that have driven a wedge between them:Weak BanksIn an attempt to clean up the banking system, the RBI
ring-fenced weak state-run banks
Currently, a total 12 banks -- 11 in the public sector and one in the private sector-- are under the so-called prompt corrective action
framework that places curbs on lending, expanding branch network and dividend distribution.The government wants some of these strictures to
be eased so that banks can kick start lending and support growth.Mr Acharya said the restrictions were "indeed the required medicine to
prevent further hemorrhaging of their balance sheet." Some of these weak banks are slowly being nursed to health, he added.Bad LoansThe RBI
has been waging a multi-year campaign to get state lenders to recognize soured loans and has been leaning on bank managers to cut off credit
to "willful defaulters" - borrowers who have stopped servicing their debt even though they have the ability to pay.As part of that attempt,
the RBI earlier this year introduced new rules forcing lenders to declare a delinquent borrower even if payments were overdue by a day
That was aimed at easing mounting bad loans, particularly from the power sector.Government officials along with those from the power sector
have been lobbying the central bank to ease those norms, but with little success
Last month, the top court ordered lenders to temporarily halt the start of bankruptcy proceedings against power producers considered
delinquent borrowers.More MoneyThe government is of the view that the RBI should part with most, if not all, of its profit as dividend
The central bank opposes this idea and says the government is undermining its independence by asking for a greater share of surplus at a
time when there is a need to make the RBI's balance sheet stronger."Having adequate reserves to bear any losses that arise from central bank
operations and having appropriate rules to allocate profits including rules that govern the accumulation of capital and reserves is
considered an important part of central bank's independence from the government," Mr Acharya said on Friday.A transfer of more dividends
helps the government meet its budget targets
Last year, the RBI parted with Rs 10,000 crore ($1.36 billion) more as interim dividend.Payments RegulatorThe RBI opposes an
inter-ministerial panel's recommendation for the creation of a separate payments regulator
According to the RBI, the payments regulatory board must remain with the Reserve Bank and headed by the governor, citing the international
model."The composition of the PRB is also not in conformity with the announcements made in the Finance Bill," the RBI said in a dissent note
19.Inflation ModelLast year, then-Chief Economic Adviser Arvind Subramanian criticized forecasting errors by the inflation-targeting central
bank, which he said are "large and systematically one-sided in overstating inflation." Those comments came after members of the Monetary
Policy Committee headed by Mr Patel didn't attend a meeting with finance ministry officials before a policy rate meeting.Inflation has
recently undershot the RBI's projections but the central bank has shifted its policy stance toward tightening.
