For outgoing RBI Governor Urjit Patel’s successor, the biggest challenge would be to handle the pressure from the government on issues such as restructuring of loans, infusing liquidity and sticking to its strict default norms for resolution of bad debts in banks’ books, where the Centre has favoured a more lenient approach. On all of these issues, especially over the last 12-months, Patel had steadfastly refused to toe the government line.
When Patel took over as the 24th Governor of the Reserve Bank of India (RBI) on September 4, 2016, he would hardly have expected to preside over one of the most disruptive and controversial economic moves by a government in many decades — demonetisation or the withdrawal of Rs 500 and Rs 1,000 notes. Patel, who succeeded Raghuram Rajan as India’s central bank chief, had to witness the hardship faced by millions of citizens as they scampered to deposit demonetised notes in various banks’ branches and struggling to withdraw cash. Managing the notes ban was one of the biggest challenges for Patel who resigned as the Governor on Monday. For it was the credibility of the RBI and Patel himself which was at stake then.
However, Patel, an accomplished macro economist with degrees from the London School of Economics and Oxford and a Phd from Yale University, who has always been known to be reclusive unlike his predecessor, the high-profile Raghuram Rajan, was seen as having gradually clawed back on that by not relenting on the clean-up of bank balance sheets and rules on bad loans besides a tougher policing of banks, especially private banks. Patel, considered as a key lieutenant of former RBI governor Raghuram Rajan, was appointed as the Deputy Governor in charge of the Monetary Policy Department for a three-year term in January 2013. After Rajan’s three-year term ended in September 2016, Patel was appointed as the Governor by the NDA government.
Two of the major initiatives which were first kicked off during the tenure of his predecessor Raghuram Rajan — the formalisation of the Monetary Policy Committee and cleaning up of bad loans in the banking system have since been carried forward.
The Monetary Policy Committee which now decides on interest rates started during the early phase of Patel’s tenure and he chaired the first meeting of the MPC on October 3 and 4 which also slashed the repo rate by 25 basis points to 6.25 per cent. Despite calls from corporate India and others for going easy on the asset quality review kicked off by Rajan on the grounds that growth would be hit, Patel has continued the exercise. The central bank has utilised the Insolvency and Bankruptcy Code (IBC) to address the huge debt pile of some of the biggest defaulters; the RBI came up with two lists of 40 corporates with debt of around Rs 4 lakh crore which are in different stages of resolution in National Company Law Tribunals (NCLTs). He added to the clean-up exercise by issuing a circular scrapping all loan restructuring schemes which were nothing but packages aimed at whitewashing non-performing assets (NPAs). The RBI did not relent even when the government sought relaxation in the famous February 12 circular.
Financial sector sources also point out the governance and regulatory issues, especially in PSU banks, as a concern. “There were issues on the regulation front. The Rs 13,000 crore Punjab National Bank fraud was one issue. IL&FS default issue hit the financial system. The RBI had asked for more powers to tackle governance issues but the government has contested it,” said a source.
Patel’s resignation eight months before the end of his three-year tenure on September 4, 2019 has come in the backdrop of the intense pressure from the government which wanted more credit for small units, more liquidity in the system and more cash for the government to tide over the rigmarole facing the economy which also led to the government invoking the hitherto unused Section 7 of the RBI Act to direct the RBI to take measures, which the central bank took it as a measure meddling with its autonomy.
On Monday, Patel said in a statement, “on account of personal reasons, I have decided to step down from my current position effective immediately. It has been my privilege and honour to serve in the Reserve Bank of India in various capacities over the years.”