The news of Patel's possible resignation has sent rocked the Indian government.
Quoting a source, the report said that there has been an "irreversible breakdown between the RBI governor and the government".
The rift between the RBI and the Modi government turned ugly after Patel's deputy, Viral Acharya, said last week that attempts to undermine the central bank's autonomy could prove be 'potentially catastrophic'.
Earlier, finance minister Arun Jaitley had accused the central bank of sleeping on the job for its failure to check indiscriminate lending by public sector banks between 2008 and 2014. The issues which were called upon by the Centre were reportedly in public interest.
The ongoing spat between the government and the Reserve Bank of India (RBI), if not contained, will have dire consequences on the markets, feel Dalal Street experts. What's interesting is that the following Section of the RBI Act has never been used by any government post the independence of India.
The letter, according to Firstpost, wanted RBI to carve out exemption for power companies under 12 February circular. First, it is private power companies, second 11 banks affected by PCA and the third is only moderate entrepreneurs.
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Slamming the government for citing a never-used clause of the RBI Act, former Union finance minister P Chidambaram on Wednesday alleged that the BJP dispensation is "hiding facts" about the economy and is "desperate". "There have been talks with the RBI on these issues, but invoking Section 7 (1) is something that has not come up yet but we need to also ensure that industries are not killed", he added.
Issuing a statement, the Finance Ministry said, "The autonomy for the Central Bank, within the framework of the RBI Act, is an essential and accepted governance requirement". Governments in India have nurtured and respected this.
Neither denying nor accepting, the Ministry of Finance has issued a statement saying that extensive consultations on several issues take place between the government and the RBI and only final decisions are communicated. This is equally true of all regulators.
"The government of India has never made public the subject matter of those consultations. The Government will continue to do so".
The government issued the statement to address the perception of growing differences between the finance ministry and the country's central bank.
"It is hard to believe that the RBI governor will resign because it is unprecedented and would look quite irresponsible and (an) immature step", said a senior trader at a foreign bank. The association said Acharya's comments about government's interventionist role vis-àvis the RBI have created a flutter across the nation.