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Amid reports of invoking special powers to direct it, Govt says RBI autonomy essential

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6 years ago

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RBI

Following a report in a leading business daily, speculation abounded on Wednesday about whether the government had invoked Section 7 of the RBI Act, which would give the government the ability to direct the central bank’s actions.

Finance Ministry remained studiously silent on the issue while the Economic Affairs Secretary declined to comment on whether Section 7 had been invoked, as reported by the Economic Times today (Wednesday, October 31).

The official statement issued by Finance Ministry also made no mention of it.

The Finance Ministry statement acknowledged that the autonomy of the Reserve Bank of India (RBI) is an “essential and accepted governance requirement”, but it neither confirmed nor denied that it had issued directives to the bank under Section 7 of the RBI Act.

A statement from the Department of Economic Affairs of the Ministry said:

“The autonomy for the Central Bank, within the framework of the RBI Act, is an essential and accepted governance requirement.

“Governments in India have nurtured and respected this. Both the government and the central bank, in their functioning, have to be guided by public interest and the requirements of the Indian economy.

“For the purpose, extensive consultations on several issues take place between the government and the RBI from time to time. This is equally true of all other regulators. Government of India has never made public the subject matter of those consultations. Only the final decisions taken are communicated. The government, through these consultations, places its assessment on issues and suggests possible solutions. The government will continue to do so.”

Section 7 of the RBI Act reads: “The Central government may from time to time give such directions to the bank as it may, after consultation with the Governor of the bank, consider necessary in the public interest. Subject to any such directions, the general superintendence and direction of the affairs and business of the bank shall be entrusted to a Central Board of Directors which may exercise all powers and do all acts and things which may be exercised or done by the bank.”

This Central Board of Directors, according to the Act, comprises a Governor and [not more than four] Deputy Governors to be appointed by the government, four Directors to be nominated by the government and one official nominated by the government. Giving control of the Reserve Bank of India to its Board of Directors effectively gives this control to the government.

CNBC-TV18 reported today that the government has initiated talks with the Reserve Bank of India to consider invoking a provision never used before, which could empower it to issue directions to the central bank on certain matters. Unidentified officials told the news channel that it was unclear if holding consultations with the central bank alone meant that the law had been invoked.

According to The Economic Times however, Section 7 of the Reserve Bank of India Act may already have been invoked and could be the reason between a rift that has become increasingly public in recent days.

RBI Deputy Governor Viral Acharya had on Friday warned that undermining a central bank’s independence was “potentially catastrophic”.

Subhash Chandra Garg, the secretary of the Department of Economic Affairs in the Ministry of Finance, refused to comment on the reports.

The government has sent letters to the RBI in recent weeks, exercising its powers under Section 7 of the RBI Act on matters such as liquidity for non-banking financial companies, capital requirements for weak banks and lending to small and medium enterprises, The Economic Times reported.

The letters were sent at least a month before Acharya’s speech, an official told BloombergQuint.

Former Finance Minister P Chidambaram wrote on Twitter that if the reports were true, “I am afraid there will be more bad news today”. “We did not invoke Section 7 in [the crises of] 1991 or 1997 or 2008 or 2013,” he wrote. “What is the need to invoke the provision now? It shows that government is hiding facts about the economy and is desperate.”

Reacting to the statement issued by the finance ministry, former finance minister P Chidambaram tweeted “Obviously, the government has concealed something. The buzz is that government has recently written one or more letters to the RBI.” He added: “Will government say whether such letters have been written and whether the letters specifically refer to Section 7 of the RBI Act?”

In his speech on Friday, Acharya said that governments that do not respect a central bank’s independence sooner or later incur the wrath of financial markets. Government officials had recently called for the RBI to relax lending restrictions on some banks. The RBI also opposed a suggestion by the government’s inter-ministerial committee to set up an independent regulator for payment systems.

Three days after the speech, Reuters reported that the Centre is upset with the central bank for publicly talking about the rift. Senior officials said the government fears the rift could tarnish the country’s image among investors. An unidentified official in the Prime Minister’s Office told Reuters it was “very unfortunate” that RBI took the matters public. The official said Patel may face a tough time when he appears before a parliamentary standing committee on November 12.

On Tuesday, Finance Minister Arun Jaitley said the central bank had “looked the other way” when banks were lending “indiscriminately” between 2008 and 2014.

Another government official told Reuters that it was vital that what happened between the government and RBI was kept confidential. “The government respects the autonomy and independence of the RBI but they must understand their responsibility,” the official added.

Government officials said they were surprised that Patel, who was appointed by the Modi administration in 2016 and initially cooperated with the government, is creating tension when the Centre is facing criticism over its handling of the economy before the 2019 General Elections.

The government is also reportedly unhappy with the bank for not cutting interest rates and raising them instead.

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Video of Bill Gates enjoying Vada Pav with Sachin Tendulkar during Mumbai visit goes viral

Gates, currently touring India, has been making waves with high-profile engagements. Earlier this week, he touched down in New Delhi, where he held discussions with Prime Minister Narendra Modi and several Union ministers.

Published

7 days ago

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March 21, 2025

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Microsoft co-founder and philanthropist Bill Gates delighted his followers by posting an Instagram video featuring Indian cricket icon Sachin Tendulkar, with the playful caption, “A snack break before we get to work.” The brief clip captures the duo relishing Mumbai’s beloved street food, vada pav, whilst perched on a bench, ending with a teasing “Serving soon” message splashed across the screen.

Gates, currently touring India, has been making waves with high-profile engagements. Earlier this week, he touched down in New Delhi, where he held discussions with Prime Minister Narendra Modi and several Union ministers. His itinerary then brought him to Mumbai, where he met Maharashtra Chief Minister Devendra Fadnavis. The tech titan’s visit underscores his ongoing fascination with India’s innovative spirit, a theme he expanded upon in a recent blog post.

https://www.instagram.com/reel/DHbYDGXJnxq/?utm_source=ig_web_button_share_sheet

Writing on his personal site, Gates reflected on the trip’s impact: “I came away with fresh perspectives because India is brimming with clever, driven individuals addressing some of the globe’s toughest challenges in ingenious ways.” His words echo sentiments he shared ahead of the visit, when he praised Odisha’s farmers for leveraging artificial intelligence to boost agricultural outcomes—a story that’s garnered attention for its blend of tradition and technology.

The vada pav moment with Tendulkar, a national treasure, adds a light-hearted touch to Gates’s packed schedule. It’s not just a snack break; it hints at a potential collaboration, though details remain under wraps. For Indian fans, seeing two legends—one from tech, the other from cricket—share a casual bite is a rare treat, blending global influence with local flavour.

As Gates continues his journey, his interactions spotlight India’s dual role as a hub of innovation and a cultural powerhouse. Whether it’s AI-driven farming or a street-side snack with a sporting hero, his visit is proving to be a feast of ideas—and vada pav.

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Manappuram Finance shares hit record high after Bain Capital announces $508 million stake deal

Shares of Manappuram Finance surged to an all-time high after Bain Capital announced plans to acquire an 18% stake in the gold loan provider.

Published

1 week ago

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March 21, 2025

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Manappuram Finance shares rise after Bain Capital deal

India’s gold loan provider Manappuram Finance saw its shares soar to an all-time high on Friday after Bain Capital revealed plans to invest $508 million for an 18% stake in the company. The move, analysts say, brings clarity to Manappuram’s management succession strategy and paves the way for stronger strategic control.

Bain Capital, a U.S.-based private equity firm, will subscribe to Manappuram’s shares and warrants at Rs 236 per share — a 9% premium over Thursday’s closing price of Rs 217.5. Following the transaction, Bain will jointly control the company along with other key stakeholders, referred to as ‘promoters’ under Indian regulations.

As of 12:05 p.m. IST on Friday, Manappuram’s shares surged by as much as 6.3% to Rs 231.08, marking their highest level on record.

Founder to step back as Bain gains influence

Founder and CEO V.P. Nandakumar, who has led the company for nearly four decades, will transition to the role of non-executive chairman once the investment is finalized. With Bain Capital now having rights to influence strategic decisions and appoint key roles including the CEO, analysts at Jefferies and CLSA have responded positively.

CLSA noted that the potential for re-rating of Manappuram’s stock is strong as new leadership takes over. Jefferies and CLSA have both raised their target prices by 14.6% and 20%, respectively, maintaining bullish ratings of “buy” and “outperform.”

Deal to boost gold loan business, offset microfinance losses

The deal is expected to close in the upcoming financial year and is likely to accelerate growth in the company’s gold loan segment, which currently contributes around 75% of its total revenue. With gold prices at historic highs, the demand for gold-backed loans remains robust.

Additionally, analysts expect part of the capital raised through the deal may be used to cushion the losses in Manappuram’s microfinance division. The company confirmed that Asirvad Micro Finance, its microfinance subsidiary, will withdraw its IPO draft filing amid changing market conditions and regulatory scrutiny.

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Alphabet’s $32 billion acquisition of Wiz marks biggest cybersecurity push

Alphabet has announced a $32 billion deal to acquire Wiz, reinforcing its cloud security offerings as it competes with AWS and Microsoft Azure.

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1 week ago

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March 19, 2025

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Alphabet to acquire Wiz for $32 billion to boost cloud security

Alphabet, the parent company of Google, has announced its largest acquisition to date with a $32 billion deal to buy cybersecurity startup Wiz. The move signals Alphabet’s aggressive expansion in cloud security as it competes with Amazon Web Services and Microsoft Azure in the cloud computing market.

A strategic investment in cybersecurity

The acquisition will integrate Wiz into Google Cloud, reinforcing its security capabilities to help businesses mitigate cyber risks. The deal, which follows Alphabet’s previously unsuccessful $23 billion bid, underscores the company’s commitment to securing a stronger foothold in the cloud security space.

Wiz, an Israel-based firm, provides security solutions that work across major cloud providers, including Amazon Web Services, Microsoft Azure, and Google Cloud. The company has gained significant traction, boasting clients such as Morgan Stanley, BMW, and LVMH.

Regulatory scrutiny and financial impact

Despite the high price tag, Alphabet appears confident in securing regulatory approval under the new U.S. administration, which has maintained a watchful eye on major tech mergers. Notably, the termination fee—over $3.2 billion—stands among the highest in M&A history, signaling both parties’ commitment to closing the deal.

Alphabet’s stock dipped nearly 3% following the announcement, reflecting investor concerns over its heavy spending, particularly in AI and cloud computing. The company may need external financing, given its cash reserves of approximately $23.47 billion as of December 31, 2024.

Growing importance of cybersecurity

The acquisition highlights the increasing demand for cybersecurity solutions, especially in light of last year’s global CrowdStrike outage that disrupted businesses worldwide. Analysts suggest that for Google Cloud to compete effectively with Microsoft Azure, it must offer a more comprehensive suite of security services.

Alphabet expects the deal to be finalized in 2026, pending regulatory approvals. Meanwhile, Wiz will continue providing its services across multiple cloud platforms, potentially alleviating antitrust concerns.

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