Kolkata, Nov 8 (IANS): Assailing 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.

Chidambarm 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".

"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, to 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 is 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 Nov 19," he said on the second anniversary of the demonetisation exercise carried out by the Modi government.