The sudden resignation of RBI Governor Urjit Patel after a prolonged faceoff with the government has raised some concerns within India Inc with at least two corporate chieftains terming it as “unfortunate” and seeking a quick replacement with a credible face.
Naushad Forbes, co-chairman, Forbes Marshall and former CII president, said, “It is unfortunate and it comes across as a consequence of his disagreement with the government. It is important to see that a new Governor is appointed quickly and that the candidate is respectable and is seen to be independent.”
Sunil Kant Munjal, chairman, Hero Enterprise, said the resignation raises anxiety and questions. “RBI, as an institution, is the caretaker of the banking system and overall economy and any disruption at the institution will have an impact even though temporary. Questions will be asked on why it happened now.” He further added, “markets globally are turbulent at this point of time and such a development here raises anxiety, although it could be a normal decision. But I don’t know what the reality is and no one knows. Whatever it is, the next step has to be taken quickly.”
Late Monday, rating agency Moody’s Investors Service, in a statement, said the independence of a country’s central bank is an important consideration while assessing a country’s institutional strength and any attempt by the government to curtail it would be credit negative.
Bankers and fund managers are bracing for volatility in the markets Tuesday. Soon after the Governor’s resignation that came after market hours, the rupee slid over 1.1 per cent (72.46 to the US $ at 6.30 IST) in the overseas (Non-Deliverable Forward) market.
Former RBI Governor C Rangarajan told The Indian Express he was deeply “surprised and saddened by the resignation of Urjit Patel” and hoped that the government appoints a new Governor quickly.
Former RBI governor Raghuram Rajan told Reuters: “I think Dr Patel has made a statement.. We should go into the details on why there was an impasse which forced him to take this ultimate decision and I think this is something all Indians should be concerned about because the strength of our institution is really important.”
Fund managers feel that the resignation will be “taken negatively by the market” on an immediate basis and his replacement will hold the key.
“A lot will depend on who replaces Dr Urjit Patel. A man or woman of standing and credibility will convince the market that the RBI is an institution and not an individual and the good work done by the RBI in inflation management will be carried forward,” said Nilesh Shah, MD, Kotak Mahindra Mutual Fund.
A global fund manager said that given the fact that around $40 billion of unindexed money is in Indian markets and Indian bonds are not part of any bond markets, investing in India is a risk for bond fund managers and a small “underperformance” can hit hard as funds can exit.
Despite such concerns, PSU banks, as a group, are expected to gain from the resignation of Patel who was seen as being unsympathetic to their cause. Two senior bankers in state-owned banks, who asked that they not be named, said the new Governor is expected to be somewhat more “realistic” and help in faster exit of some PSU banks out of the RBI’s PCA framework.
The new Governor, they said, could also hand over a portion of the RBI’s surplus capital to infuse capital in stressed PSU banks.
Market sources said rating agencies are unlikely to put India on credit watch.
S. Gurumurthy, RBI board member said: “Surprised at the news that RBI governor has resigned. The previous meeting was held in such cordial atmosphere that it comes as a shock…I enjoyed several hours of personal discussions with him where we found large areas of agreement as well as mutually understandable disagreement. His resignation is indeed setback to the effects of the convergence of views that was taking place. We will miss him.”