The finance ministry had “broadly” agreed to tighten the Prompt Corrective Action (PCA) framework by the Reserve Bank of India (RBI), a month prior to its release last year, Business Standard reported, citing sources in the central bank.
The revising of the PCA framework was proposed by the Reserve Bank of India (RBI) in September 2016.
A letter dated March 3, 2017, written by an under-secretary-level official of the Department of Financial Services (DFS) to a chief general manager-level official of the RBI read that the government was in “broad agreement” to the proposed changes to the PCA framework, the report said.
“Proper consultations between the government and the RBI on the PCA happened beforehand,” sources familiar with the development were quoted by the paper.
However, on April 13, 2017, the finance ministry released a revised PCA framework which became one of the main reason for the rift between the central bank and the government recently, the report said.
On Friday, RBI Deputy Governor Viral Acharya warned that undermining a central bank's independence could be "potentially catastrophic", in an indication that it is pushing back hard against government pressure to relax its policies and reduce its powers ahead of a general election due by next May.