What exactly transpired at Monday's RBI meet

The differences revolved around the two topics of how much reserves the RBI should carry and whether the finance ministry had precipitated matters by invoking Section 7 of the RBI Act, that allows it to give directions to the RBI in public interest.

It was an unusual meeting of the central board of directors of the Reserve Bank of India on Monday.

At least two sources involved with the meeting said it went extra long because the differences seemed difficult to reconcile at one stage in the first half of the day.

"There were heated discussions," said one of the board members.

The differences came to the fore as soon as the first presentations were made, the source said.

The differences revolved around the two topics of how much reserves the RBI should carry and whether the finance ministry had precipitated matters by invoking Section 7 of the RBI Act, that allows it to give directions to the RBI in public interest.

"People had positioned themselves on both these issues and the differences continued for quite some time," said a source.

However tempers cooled down later in the day, when the finance ministry accepted the need to set up a committee.

"Both the secretaries (department of economic affairs and department of financial services) were very accommodative and walked the distance in working out a solution."

One of the first points sorted out in the meeting was the need for the RBI and the finance ministry to take coordinated measures to help relax the credit squeeze being faced by the small and medium enterprises sector.

Sachin Chaturvedi, director general of RIS and a member of the board said "the meeting was most comprehensive and took on board a huge amount of data on each of the subjects mentioned in the agenda."

It was almost like a classroom at times, he said, as each one present was keen to resolve the impasse for the sake of the economy.

Photograph: Vivek Prakash/Reuters