Balance of power, in the balance

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(Any attempt by the centre to override the RBI governor using the RBI act would be ill- advised ) :

(Any attempt by the centre to override the RBI governor using the RBI act would be ill- advised ) Context- The role of the board of directors of reserve bank of india and its powers vis-à-vis the RBI head have came into focus in the ongoing tussels between the centre and the central bank. The centre has hinted that it is examming the option of using the powers of the RBI board to override the governor.

Questions raised -:

Questions raised - There are several questions that arise from this unprecedented attempt by the centre to use powers under the RBI act 1934. The most important of these is where does the balance of power lie between the head of the central bank and the board? What is the legal position of the board as in a corporate set up? Can the board give directions to the governor on issues of policy and management of the central bank?

Solution from RBI act-:

Solution from RBI act- As per the RBI act, the board is made up of the following members: the governor, four deputy governor and four directors to be nominated by the centre, and one govt official who is also to be nominated by the centre. The present board is made up of 18 members, which is the governor, four deputy governor, four regional board members and nomines from the centre who include two officials the economic affairs secretary and the secretary, department of financials service.


First the regulation have to be consistent with the provision of the RBI act. Which essentially means that the board has to act within the framework of the act second these regulations have to go through an elaborate approval process before they become law (section 58(4)). The board has to forward the regulation to the centre which will have to table them in both houses of parliament. Members have a period of 30 days within which they can either suggest modification to the regulation or annul (declare invalid) them.


And then, there is the brahmastra of section 7(1) which confers powers on the centre to issue direction to the RBI from time to time in the public interest after consultation with the governor


Convention- The RBI board has always functioned in an advisory role with the understanding that the governor would consider its advice while making policy decision. In other words, there was mutual respect between the board and the governor with both operating in a spirit of accommodation.

.   :

.   What is the difference between then and now? The short answer is that the sprit of accommodation. Which flows out of mutual respect and understanding of each other’s compulsions between the RBI and the centre, and which was evident then is absent now.  

Final words- :

Final words - enough dirty linen has been washed in public in the past month and it is time for the centre and the RBI to behave like the mature entities that they are uphold time tested convention and act with mutual respect and a spirit of accommodation


The board meeting today, November 19, will set a crucial precedented in the economic history of the India, and one can only hope thst it will be that it will be the right one.


Summary- Turf battle is going on between central govt. and central bank over regulatory powes . They are once again at loggerheads over this issue it shows government dissent for accepting RBI as a regulatory body the central bank would prefer the payments regulatory board to function under the perview of RBI is not ready for any dilution in its power to maintain the essence of our domestic financial system both bodies must work together the synergy between the RBI and govt. is the crux of substantial financial system. The RBI feels it was lack of such regulatory control that saw PSU banks land in such a mess. Its true that loans were often given by bankers on the basis of political of bureaucratic pressure and many big borrowers would visit north block before approaching banks said officials.

contact-Training institute pune address Office No. 203, Above “SUBWAY” Sairam Building, Near Vanaz Company, Paud Rd, Kothrud, Pune, Maharashtra 411038 Name- kriti rajpoot email id- [email protected] :

contact-Training institute pune address Office No. 203, Above “SUBWAY” Sairam Building, Near Vanaz Company, Paud Rd, Kothrud , Pune, Maharashtra 411038 Name- kriti rajpoot email id- [email protected]