(Repeats Nov 14 story with no changes in text)
* Indian government, RBI trying to avoid blow-up at board meeting
* Government doesn't want to see RBI Governor Patel quit-sources
* Key for government is to create conditions for increased lending
* Reserves dispute may be kicked down the road-sources
By Manoj Kumar and Suvashree Choudhury
NEW DELHI/MUMBAI, Nov 14 (Reuters) - India's government and its central bank are getting close to ironing out some of their policy differences, said two sources familiar with the discussions, as they seek to defuse worsening tensions that had threatened to unnerve investors.
While the rift is far from healed, the sources said enough progress had been made to avoid acrimony at a board meeting of the Reserve Bank of India (RBI) next Monday. The threat that RBI Governor Urjit Patel would quit, as reported by some Indian newspapers last week, is also thought to be off the table for now, they said.
The uneasy truce is likely to see the RBI ease up on some lending restrictions to help the government stimulate the economy, said the sources. One source said the central bank could agree to tweak restrictions on lending to improve credit flows for smaller companies with a borrowing limit of 250 million rupees ($3.4 million).
Neither the RBI nor the finance ministry responded to requests for comment for this article. The prime minister’s office declined to comment.
It is unclear how much of a role Prime Minister Narendra Modi played in defusing the tension. Local media reported that Modi met Patel last week in an attempt to sort out the contentious issues but officials in the prime minister's office and the RBI said they did not know of such a meeting.
Modi had appointed Patel as the RBI governor in 2016 for a three-year term that ends in September next year.
For weeks, government officials in New Delhi have been pressuring the Mumbai-based RBI to accede to a range of demands, from easing lending curbs to handing over surplus reserves to the government. This prompted RBI Deputy Governor Viral Acharya to warn late last month that undermining a central bank's independence could be "catastrophic," bringing the feud into the open.
Tensions were expected to come to a head at Monday's meeting as government representatives on the board appeared to be ready to turn up the heat on Patel and accuse the RBI of being intransigent in the face of government demands.
Now, it seems likely there will be a more constructive atmosphere with agreement on some issues, and disputed questions shelved for another day, the sources said.