New Delhi
Amid mounting tension between the Reserve Bank of India and the finance ministry, former RBI Governor Raghuram Rajan on Tuesday said the bank is like a seat belt in a car, without which accidents can happen.

Pitching for respecting the institutional autonomy of the RBI, he said the Central bank has the liberty to say no if the government pushes it to be lenient.
Ahead of the November 19 meeting of the RBI board, he said its objective is to protect the institution and not serve others’ interests.

Historically, the relationship between the RBI and the government has been precisely this the government wants to focus on improving growth and it does all it can within the limits set by the RBI, which are based on financial stability.

“So, the government will push, will try and get the RBI to be more lenient,” he said, adding that the Central bank would examine them in close details and in reference to risks to financial stability. “We (RBI) have responsibility for financial stability and therefore have an authority to say no,” he said.

The RBI led by Governor Urjit Patel and the government have not been on the same page on different issues for some months now. The disagreements came out in open when RBI Deputy Governor Viral Acharya, in a hard-hitting speech, said failure to defend the bank’s independence would “incur the wrath of the markets”.

It later emerged that the government had used a never-before-used provision of the law to seek resolution of issues, including the easing of NPA norms, so that banks can kickstart lending and support growth, and transferring more dividend to boost liquidity issues which the Central bank thinks cannot be relented.

“Of course the RBI doesn’t say no out of petulance. It says it because it has examined the situation and believes that this take implies too much financial instability,” Rajan said. “I think that relationship has gone on for long and the fact that the RBI says no is not new. The government can keep asking and say please consider this, please consider that but at some point, it says okay I respect your decision, you are the financial stability regulator and I back off.”

“Once you have appointed these Deputy Governors and Governor, you have to listen to them because that is what you have appointment them for, they are your safety belt,” he said.