“What Viral did was to throw petrol on an already massive fire. The confrontation between the government and RBI is not new but the speech, coming within days after an adjourned board meeting, resulted in public drama where tit-for-tat became a fair game,” said an independent director, who played a key role in working behind the scenes. The four-recently nominated directors — S Gurumurthy, Satish Marathe, Sachin Chaturvedi and Revathy Iyer — were not part of the deliberations as they had only attended one meeting before the fight turned into a crisis.
At the meeting, directors from various fields were unanimous in their view that the situation could not be allowed to persist.
It was quite clear that both the government and RBI had taken extreme positions. Several board members realised that RBI could not declare “poorna swaraj”, or complete independence, as it had to be accountable. “On monetary policy, RBI has been given a free hand and the board does not even discuss it. But, everything being pushed as independence is also unacceptable. Some oversight is needed,” said a director.
These directors were also of the view that government seeking consultations with RBI on at least three issues under the never-used provision of Section 7 was also “inappropriate”.
What unfolded over the next few days were some face-to-face meetings and multiple phone calls between the independent directors to formulate a strategy to break the impasse.
In between, the directors were also in touch with government officials and the RBI management, who were also keen to avoid issues reaching a breaking point, where either a directive was issued to the governor or some of the central bank brass resigned, something that was widely feared.
The two warring parties realised that there had to be some give and take. Sources said the idea was to split the issues so that directors who had different points of view on various issues could also take an independent stance. For instance, Gurumurthy, who had made a passionate case for support to small businesses at the October 23 board meeting, was not so stuck on the issue of how much reserves RBI should have.
But, most directors also saw merit in some of the government’s arguments. For instance, the near unanimous view was that micro, small and medium enterprises (MSMEs) were in distress. “They had been in ICU for three years and you need to save the patient,” said an independent director.