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The government has cited a never-used legal provision in trying to resolve disagreements with the central bank, which could lead it to direct the monetary authority to do its bidding if invoked, people with knowledge of the matter said. During his speech, he said in terms of decision-making, the government's horizon was that a T20 cricket match, while that of the RBI's was a test match.

Section 7 of the RBI Act empowers the government to issue directions necessary for public interest to the RBI from time to time after consultation with the RBI governor.

The government will also soon issue a statement after media reports that the government had invoked Section 7 of the RBI Act.

With Government invoking the never used section, the central bankers feel that it will leave the very little scope of the bank to work in the way they deem to be fit. "I am surprised that at that time, the government looked the other way, the banks looked the other way". Reserve Bank case emphasising that "the Reserve Bank, apart from it being a reasonable body, is answerable to the Central Government, and the public opinion is certainly strong and vocal enough for it to heed. They kept pushing truth below the carpet".

The council discussed at length the issue of real interest rate, current liquidity situation, including segmental liquidity position in NBFCs and the mutual fund space, an official statement said.

The letters were sent at least a month before Acharya's speech, an official told BloombergQuint. Arguing against the Centre's proposal, the RBI had said, "The digital payments have made good and steady progress".

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The ongoing tussle between the Reserve Bank of India and the government appeared to ease on Wednesday, after the government issued a statement assuring its respect for the central bank's autonomy.

Reports about Urjit Patel stepping down as the RBI governor started floating following Finance Minister Arun Jaitley's scathing criticism of the central bank's "lending spree", reports quoted sources as saying on Wednesday. Second letter was on using RBI's capital reserves and the third letter was on relaxing constraints on PCA banks for loans to SMEs.

The development comes amidst growing rift between the centre and the central bank after the RBI deputy governor Viral Acharya, in a fiery speech, warned that undermining a central bank's independence could be "potentially catastrophic".

Financial markets have not reacted to the rift, but investors and traders are wary, as they want to see policymakers working closely together to stabilise India's fragile banking system and roiled markets.

Unlike in the past, all four RBI deputy governors attended the FSDC meeting along with Dr. Patel.


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