Skip to content 
Search

Latest Stories

Indian Government, RBI Set For Uneasy Truce: Sources

India's government and its central bank, Reserve Bank of India (RBI) are getting close to ironing out some of their policy differences, said two sources familiar with the discussions, as they seek to defuse worsening tensions that had threatened to unnerve investors.

While the rift is far from healed, the sources said enough progress had been made to avoid acrimony at a board meeting of the RBI next week. The threat that RBI Governor Urjit Patel would quit, as reported by some Indian newspapers last week, is also thought to be off the table, for now, they said.


The uneasy truce is likely to see the RBI ease up on some lending restrictions to help the government stimulate the economy, said the sources. One source said the central bank could agree to tweak restrictions on lending to improve credit flows for smaller companies with a borrowing limit of Rs 250 million ($3.4 million).

Neither the RBI nor the finance ministry responded to requests for comment for this article. The prime minister’s office declined to comment.

It is unclear how much of a role prime minister Narendra Modi played in defusing the tension. Local media reported that Modi met Patel last week in an attempt to sort out the contentious issues but officials in the prime minister's office and the RBI said they did not know of such a meeting.

Modi had appointed Patel as the RBI governor in 2016 for a three-year term that ends in September next year.

For weeks, government officials in New Delhi have been pressuring the Mumbai-based RBI to accede to a range of demands, from easing lending curbs to handing over surplus reserves to the government. This prompted RBI deputy governor Viral Acharya to warn late last month that undermining a central bank's independence could be "catastrophic," bringing the feud into the open.

Tensions were expected to come to a head at Monday's (12) meeting as government representatives on the board appeared to be ready to turn up the heat on Patel and accuse the RBI of being intransigent in the face of government demands.

Now, it seems likely there will be a more constructive atmosphere with agreement on some issues, and disputed questions shelved for another day, the sources said.

Can't Agree To Everything

The government is keen to provide more stimulus to the economy heading into next year's election, especially as the incomes of many farmers have been hit by low crop prices. At the same time, it doesn't want a bust-up with the central bank, which could badly affect investor sentiment and provide political fodder to the opposition Congress party.

"The government understands the regulator will remain a regulator and can't agree to all demands," said a government official, who declined to be named, referring to the RBI.

While the official did not give any details of the solutions being worked out with the RBI, he acknowledged that the government did not want to trigger Patel's departure at such a sensitive time.

There are five key state elections in the next few weeks and a general election due by May. The Congress party has already been harrying the government over allegations of corruption in a military jet deal with France and infighting between the top officials of India's equivalent of the FBI.

An RBI board member said that helping to ease tensions was the idea that both sides wanted a healthy economy. It was just a question of how to get there.

"The main issue is how to boost credit growth," the member said referring to the credit crunch facing small companies.

Economics affairs secretary SC Garg is expected to make a presentation in the board meeting to outline the concerns of the finance ministry and could bring up the question about the transfer of surplus cash reserves held by the RBI, the sources said.

The board member said that an expert panel may be set up to work out the appropriate level of contingency reserves for the RBI, effectively kicking that question down the road.

The RBI introduced a so-called corrective action plan in 2014 for 11 state-run banks with bad loan issues and depleted capital. That plan included curbs on risky lending and RBI officials said, as a result, the banks' loan growth fell to zero and had remained there since 2016, from 10 per cent in 2014.

According to the RBI board member, the government wants the RBI to ease those curbs and lower capital requirements for the 11.

Some improvements in the balance sheets of those lenders might give the RBI leeway to do that, although the RBI would prefer to give the mending process more time, said another official who is aware of discussions within the central bank.

Reuters

More For You

Bangladesh seeks US deal to shield garment industry from tariffs

Workers are engaged at their sewing stations in a garment factory in Savar, on the outskirts of Dhaka, on April 9, 2025. (Photo by MUNIR UZ ZAMAN/AFP via Getty Images)

Bangladesh seeks US deal to shield garment industry from tariffs

BANGLADESH, the world's second-biggest garment manufacturer, aims to strike a trade deal with the US before Donald Trump's punishing tariffs kick in next week, said the country's top commerce official.

Dhaka is proposing to buy Boeing planes and boost imports of US wheat, cotton and oil in a bid to reduce the trade deficit, which Trump used as the reason for imposing painful levies in his "Liberation Day" announcement.

Keep ReadingShow less
UK business district
The Canary Wharf business district including global financial institutions in London.
Getty Images

Bond yields ease following Starmer’s support for Reeves

THE COST of UK government borrowing fell on Thursday, partially reversing the rise seen after Chancellor Rachel Reeves became emotional during Prime Minister’s Questions.

The yield on 10-year government bonds dropped to 4.55 per cent, down from 4.61 per cent the previous day. The pound also recovered slightly to $1.3668 (around £1.00), though it did not regain all its earlier losses.

Keep ReadingShow less
modi-trump-getty
Modi shakes hands with Trump before a meeting at Hyderabad House in New Delhi on February 25, 2020. (Photo: Getty Images)
Getty Images

Indian exporters watch closely as Trump says trade deal with India likely

THE US could reach a trade deal with India that would help American companies compete more easily in the Indian market and reduce tariff rates, President Donald Trump said on Tuesday. However, he cast doubt on a similar deal with Japan.

Speaking to reporters on Air Force One, Trump said he believed India was ready to lower trade barriers, potentially paving the way for an agreement that would avoid the 26 per cent tariff rate he had announced on April 2 and paused until July 9.

Keep ReadingShow less
Kolhapuri sandal sales surge in India post Prada controversy

Customers shop for 'Kolhapuri' sandals, an Indian ethnic footwear, at a store in New Delhi, India, June 27, 2025. REUTERS/Adnan Abidi

Kolhapuri sandal sales surge in India post Prada controversy

INDIAN footwear sellers and artisans are tapping into nationalist pride stoked by the Prada 'sandal scandal' in a bid to boost sales of ethnic slippers with history dating back to the 12th century, raising hopes of reviving a struggling craft.

Sales are surging over the past week for the 'Kolhapuri' sandals that have garnered global attention after Prada sparked a controversy by showcasing similar designs in Milan, without initially crediting the footwear's origins.

Keep ReadingShow less
UK business district
The Canary Wharf business district including global financial institutions in London.
Getty Images

Economy grew 0.7 per cent in Q1 2025, fastest in a year

THE UK economy expanded at its fastest pace in a year during the first quarter of 2025, driven by a rise in home purchases ahead of a tax deadline and higher manufacturing output before the introduction of new US import tariffs.

Gross domestic product rose by 0.7 per cent in the January-to-March period, the Office for National Statistics (ONS) said, confirming its earlier estimate. This was the strongest quarterly growth since the first quarter of 2024.

Keep ReadingShow less