Unidentified officials told the news channel that it was unclear if holding consultations with the central bank alone meant that the law had been invoked. "It might be better if the time-honored practice of the finance minister and the governor of the RBI meeting often in private and talking issues".
Subhash Chandra Garg, the secretary of the Department of Economic Affairs in the Ministry of Finance, refused to comment on the reports.
As per the Section 7 of the RBI Act, the Central Government is entitled to give directions to the Central Bank after it consults the RBI Governor. The RBI has put lending curbs on some weak state-run banks, while the government - facing an election early next year - wants to ensure banks continue to lend to boost economic growth. However, two letters were sent to RBI last month in which "Section 7 was quoted", highlighting the existence of powers under the Act that allows the government to issue directions to the central bank on "matters of public interest".
The tension prompted former finance minister Palaniappan Chidambaram to urge the government and the Reserve Bank of India to work behind closed doors to iron out their differences. Regardless of the speculations in media, there are reasons to believe that government is very unlikely to go for the extreme step of invoking Section 7, which would add to its headaches in the financial markets. "What is the need to invoke the provision now?" The government, on its part, asked the RBI to prevent the spreading of contagion from the troubled IL&FS to other sectors of the economy, officials added.
"Governments that do not respect central bank independence will sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution", he said.
"The central bank looked the other way (when) there was indiscriminate lending". The RBI also opposed a suggestion by the government's inter-ministerial committee to set up an independent regulator for payment systems.
BJP slammed Rahul Gandhi for his criticism against Prime Minister Narendra Modi over the RBI-Centre rift, and said that it reflects Congress party's grounding, "which is fast eroding in national politics".
One report indicates that consultations between the Centre and the RBI have been initiated under Section 7, but that no specific directions have been given yet.
The official in the prime minister's office said Patel could face a tough time when he appears before a parliamentary standing committee on November 12.
Jaitley had on Tuesday blamed the RBI for failing to stop a lending spree between 2008-2014 that left banks with huge bad debts, inflaming a row that recently erupted between the government and the central bank. According to ET Now, Patel had told government not to "raid RBI reserves", as government was keen on the transfer of reserves to fill up its fiscal deficit amid NPA stress.
This temporarily takes away the RBI's independence and autonomy.