The Reserve Bank of India (RBI) and the government are moving towards a resolution of their biggest points of conflict in the build-up to a meeting of the central bank's board on Monday. Sources said the two sides are close to finding a solution to two key differences - liquidity and credit issues. Amid de-escalation efforts, RBI Governor Urjit Patel's resignation at the board meeting - a speculation in media reports in the past few days - is unlikely, say sources.
In recent weeks, the government was seen to have been ramping up pressure on the regulator to relax lending curbs and hand over surplus reserves. The government, the Congress alleged, had demanded Rs. 1 lakh crore from the central bank reserves in face of huge fiscal deficit and the need to boost economy in an election year.
The bank, which earlier said it would inject Rs. 40,000 crore into the market in November, will release the first tranche of the money - Rs. 12,000 crore - on November 15.
In a statement, the bank said it has decided to purchase government securities through Open Market Operations. In October, the bank had injected Rs. 36,000 crore into the market.
The move comes amid worries of liquidity crunch after defaults at one of the country's largest infrastructure financing companies.
News agency Reuters reported that the bank is also considering easing up on lending curbs on some banks - which is another contentious issue. The RBI had barred 11 state-run banks from lending, demanding they reduce bad debt and become profitable.
The government-RBI feud came out in the open when RBI Deputy Governor Viral Acharya warned in a speech late last month that undermining a central bank's independence could be "catastrophic".
Reports about a solution comes after a meeting between Prime Minister Narendra Modi and Urjit Patel that reportedly took place last week. Sources said the Prime Minister wanted to have a "first-hand account" and explain to Mr Patel his government's perspective, sources told NDTV after the meeting.
The tension between the bank and the government ratcheted up after reports that the government was planning to invoke Section 7 of the RBI Act. The rarely used Section 7 enables the government to consult and give instructions to the RBI chief, citing public interest.
Sources say Section 7 is unlikely to be used now.
Senior Congress leader and former union finance minister P Chidambaram had said about the board meeting that the government might try to force the hand of the RBI chief through its men on the board. In that case, the Governor's only two options will be to give in or resign, he had said.
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