The section has never been invoked before in the history of independent India. Economic Affairs Secretary Subhash Chandra Garg declined to comment, while Finance Secretary Hasmukh Adhia said it was for the Department of Economic Affairs to clarify on Section 7 of the law.
The counsel representing RBI had said that Section 7 of the RBI Act "embodies and puts in place a forum for resolution of all questions and is in one sense the repository mechanism for dealing with issues which constitute a "conflict zone".
The statement comes amid reports of the government having issued directions to the RBI on issues such as easing lending norms to infuse liquidity in the system. However, they added, there has been no talk of invoking Section 7 (1).
On Friday, RBI Deputy Governor Viral Acharya warned that undermining a central bank's independence could be 'potentially catastrophic, ' in an indication that it is pushing back hard against government pressure to relax its policies and reduce its powers ahead of a general election due by next May.
The FSDC is headed by the Finance Minister and comprises the RBI Governor, the SEBI Chairman, and heads of regulators such as PFRDA, IRDAI and the Chairman of the Insolvency and Bankruptcy Board. The letter wanted RBI to carve out exemption for power companies under 12 February circular. But in 2016, the central bank conducted a special asset quality review of all banks that determined there were $150 billion of non-performing loans, forcing the RBI to impose lending restrictions on some. Speculations can have major ramifications and destablise markets, at least, in the short-term, particularly equities. Arguing against the Centre's proposal, the RBI had said, "The digital payments have made good and steady progress".More news: Privately developed Chinese rocket, carrying satellite, fails to enter orbit
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India's highest-circulation English-language paper, the Times of India, wrote in an editorial that curbing the RBI's autonomy or removing RBI Governor Urjit Patel would trigger a mass exodus of investors and 'the government must not contemplate it even in its dreams'. "I am surprised that at that time, the government looked the other way, the banks looked the other way".
With the war between the Narendra Modi-led NDA government and the Reserve Bank of India (RBI) escalating, there is apprehension that the government may invoke Section 7 of the RBI Act.
Senior government officials said the RBI's guidelines on NPAs were not only stringent but "too harsh", and could have serious ramifications on industries such as MSME and power.
Unlike in the past, all four RBI deputy governors attended the FSDC meeting along with Dr. Patel. "The government respects the autonomy and independence of the RBI but they must understand their responsibility", the official added.