The Reserve bank of India is neither autonomous nor independent and directors are simple government servant by their appointment.
The government has invoked never-before-used powers under the RBI Act allowing it to issue directions to the central bank governor on matters of public interest. Section 7 of the RBI Act empowers the government to consult and give instructions to the governor to act on certain issues that the government considers serious and in public interest. This Section had never been used in independent India till now. The government and RBI have been at loggerheads over a few issues for some time now. While the government believed that easing of lending rules for the 11banks under the prompt corrective action (PCA) framework could help reduce pressure on micro, small and medium enterprises (MSMEs), the regulator stood its ground arguing that such a move would put the clock back and undo clean-up efforts.
Section 7 of the RBI Act as below :
7. Management.—
(1) The Central Government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest.
(2) Subject to any such directions, the general superintendence and direction of the affairs and business of the Bank shall be entrusted to a Central Board of Directors which may exercise all powers and do all acts and things which may be exercised or done by the Bank.
(3) Save as otherwise provided in regulations made by the Central Board, the Governor and in his absence the Deputy Governor nominated by him in his behalf, shall also have powers of general superintendence and direction of the affairs and the business of the Bank, and may exercise all powers and do all acts and things which may be exercised or done by the Bank.
Again u/s 30 of the Central Government has full controlling power over the RBI via Board.
30. Powers of Central Government to supersede Central Board .-(1) If in the opinion of the Central Government the bank fails to carry out any of the obligations imposed on it by or under this Act the Central Government may, by notification in the Gazette of India, declare the Central Board to be superseded, and thereafter the general superintendence and direction of the affairs of the bank shall be entrusted to such agency as the Central Government may determine, and such agency may exercise the powers and do all acts and things which may be exercised or done by the Central Board under this Act.
(2) When action is taken under this section the Central Government shall cause a full report of the circumstances leading to such action and of the action taken to be laid before Parliament at the earliest possible opportunity and in any case within three months from the issue of the notification superseding the Board.
