Kolkata: Coming down heavily on the Narendra Modi government for making efforts to "capture" the RBI, Congress leader and former Union finance minister P Chidambaram on Thursday said the chain of events could "irretrievably damage" the credibility and reputation of the apex bank.

Chidambaram alleged the Modi government demanded Rs 1 lakh crore from the reserves of the RBI in desperation as it wanted money to "step up expenditure in an election year" and found all other "avenues closed".

"As things stand today, the government will not be able to meet the fiscal deficit target of 3.3 per cent in 2018-19. Besides, the government wants money to step up expenditure in an election year.

"Finding all other avenues closed, in desperation the government demanded Rs 1 lakh crore from the reserves of the RBI. When the RBI governor (Urjit Patel) refused to oblige, the government took the extraordinary and unprecedented step of invoking section 7 of the RBI Act," Chidambaram told mediapersons.

"If the governor stands his ground, as our hope is he will, the government is planning to issue a direction to the RBI under section 7 directing the RBI to transfer Rs 1 lakh crore into the government's account.

"In that event, the governor has only two options. One, to transfer the money, or two, resign.

"In my view, whichever option is taken by the governor, it will irretrievably damage the credibility and reputation of the RBI. It will also mean capture of the RBI by the government. One more crucial institution will fall from grace," he said.

Chidambaram said November 19 would be the day of reckoning, as the RBI board is scheduled to meet on that day.

He alleged the government has packed the RBI board with its handpicked nominees, and is "making every effort to ram through its proposal" at the board meeting.

"The consequences of demonetisation have been catastrophic. ... Let's wait and see, whether there will be another catastrophe on November 19," he said on the second anniversary of the demonetisation exercise carried out by the Modi government.

Replying to a query, Chidambaram said if the government followed through on section 7 of the RBI Act, and issued a direction to the RBI, "it will lead to a catastrophe".

"This government does not know what catastrophic consequences there will be, if the RBI either defies the government, or the RBI governor resigns. In either event, the consequences will be catastrophic".

Chidambaram hoped better sense will prevail between now and Nov 19.

"But all the information I am getting is the government is determined through its handpicked nominees to force its decision upon the RBI board," he said.

Refering to former RBI governor Raghuram Rajan, Chidambaram said he has pointed out that the RBI board was not like of the board of directors of a company.

"RBI is not a company. It is not a board-managed company. The powers of RBI have to be vested in the governor, and the governor has to exercise those powers. THe RBI board is to give advise and guidance.

"But if the government converts the RBI into a board or a company, and treat it as a board-managed company, and ram through its decisions through the board, the consequences will be catastrophic. I don't want to spell out the consequences, but it will be truly catastrophic," he added.