Patel steered clear of controversial issues like Section 7 of the RBI Act, NPAs and the autonomy of the central bank in front of the parliamentary committee.
Reserve Bank of India (RBI) Governor Urjit Patel told a parliamentary committee that the current level of currency reserves in the central bank is necessary keeping in mind international volatility and to maintain high creditworthiness.
Sources quoted Patel telling the committee that these reserves are meant “for periods of stress and not for meeting normal needs,” the Times of India reported.
Patel’s comments on the surplus reserves are significant as it was one of the main issues of contention between the central bank and the government during the unprecedented rift.
The government had reportedly asked for Rs 3.6 lakh of the RBI’s cash reserves, but the charge was denied by the finance ministry, with Arun Jaitley saying the government does not need the money for the next six months.
The RBI has in the past said that a major part of its reserves, nearly 28 percent or Rs 9.7 lakh crore, is notional and must not be touched.
At its board meeting on November 19, the RBI officials agreed to define the level of reserves in the central bank, adding that a higher transfer of funds to the government will only be done if a committee recommends it. The finance ministry and the RBI will set up a panel jointly for it.
Patel told the panel there is no stress in the economy. Finance Minister Arun Jaitley was in agreement with the governor and said in an interview last week that the Centre’s fiscal position is comfortable.
Leaders of opposition parties like Congress and Trinamool Congress hurled many questions at the Governor in the committee meeting over the RBI losing grip over its autonomy and its rift with the Centre. Patel will submit written responses to the questions within a week.
Patel said that the effects of demonetisation were short-lived and it has led to a growth in digital transactions across India. He said that credit flow rose to over 15 percent and inflation was under control at 4 percent.