The letters prompted Deputy Governor Viral Acharya's hard-hitting speech on Friday, in which he warned that toying with the central bank's independence could lead to dire consequences, the people said.Representatives at the Reserve Bank weren't immediately available for comment.
Patel had come under increasing criticism from the banking industry as well as the government over his handling of non-performing assets (NPAs) and his stance on the autonomy of the RBI.
Sources present at the meeting said that Dr. Patel said the liquidity scenario among NBFCs was not as severe as it was being made out to be, but also assured the government that the RBI would ensure adequate liquidity in the system. They all largely came out in support of the central bank. He said the RBI's autonomy would be strengthened by having regulatory control over state-run banks.
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. It is in the interest of the Indian economy that the Reserve Bank alone remains the regulator for the Banks for the lending, for borrowings and fixes the rates for the banks.
"During 2008-14 after the global economic crisis to keep the economy artificially going, banks were told to open their doors and lend indiscriminately", he said in a speech at a conference attended by heads of US companies.
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"I am not expecting the rift between the RBI and the government to widen, though prolonged tensions can not be fully ruled out considering the political angle to it in the run-up to the general elections", said Prakash Sakpal, an economist at ING Bank NV in Singapore. "They kept pushing the truth below the carpet", he said.
"Both he (Modi) and his Finance Minister have proved to be not only inefficient but thoroughly incompetent when it comes to managing of the Indian economy, which has been nose-diving".
"Under Modi and BJP, they are damaging all the independent institutions of the country which have their role in maintaining governance and administration like CBI, ED, IT, DRI, central universities and many others", he alleged. "Even the RBI board is being sought to be stuffed in a particular direction which would prompt the discerning people to look askance, and make it hard for RBI to frame policies", the union said in the letter.
However, there was no sign of resignation by Patel at the meeting, officials said. "It will take month for things to settle down", the RBI director said. "But it is quite worrisome to see the government trying to continuously interfere into the RBI's operations".
The financial stability panel dealt with the fallout from the debt default from a systemically-important shadow lender that raised the risk of contagion in the economy, a government official told reporters in New Delhi after the meeting, while asking not to be identified citing rules.