UNDERLINING the deepening trust deficit between the Reserve Bank of India and the central government, RBI Governor Urjit Patel resigned Monday, almost 10 months ahead of his term — ending the shortest tenure a central banker in India has had since 1992.
Citing “personal reasons”, Patel quit weeks after a fractious faceoff with the government. A nine-hour board meeting on November 19 had sent out a conciliatory signal: it was agreed that the RBI would ease borrowing terms for SMEs; a panel, with RBI and Government nominees, would be set up to discuss use of the central bank’s reserves; and RBI would review which banks could lend again.
That’s why Patel’s announcement caught many including some of the board members of the RBI by surprise. Sources said that much before Section 7 (1) of the RBI Act was invoked — the first formal process of discussions with the Governor before the government issues a directive — Patel had indicated that he would step down if push came to shove.
The next board meeting is scheduled for December 14. Sources said that meeting was expected to consider governance reforms within the RBI and formation of the committee to look into surplus reserves to the government. There were differences over who will head the committee and the terms of reference between the government and the RBI.
Patel, 55, took over as the 24th Governor on September 5, 2016, when he was chosen by the BJP-led government after his predecessor Raghuram Rajan was denied a second-term.
“On account of personal reasons, I have decided to step down from my current position effective immediately,” Patel said in a brief statement. He thanked his RBI colleagues but avoided any reference to the government or the Finance Ministry.
“It has been my privilege and honour to serve in the Reserve Bank of India in various capacities over the years. The support and hard work of RBI staff, officers and management has been the proximate driver of the bank’s considerable accomplishments in recent years…I take this opportunity to express gratitude to my colleagues and Directors of the RBI Central Board, and wish them all the best for the future,” he said.
Speaking to The Indian Express, a senior Director on the RBI Board said, “Patel’s resignation was unexpected. Dust raised earlier was settling down after the previous board meeting. Some of the issues were actually sorted out in the meeting. I don’t know what led to his departure at this stage.”
N S Vishwanathan is the most senior Deputy Governor in the RBI.
In October, RBI Deputy Governor Viral Acharya, saying he had discussed the theme with Patel, had warned that “governments that do not respect central bank independence will sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution.”
Speculation about Patel’s resignation has been going on for some time after he resisted the government’s pressure to change policies on surplus dividend to the government, liquidity window for finance companies and more powers for the RBI Central Board.
On November 19, the government and the RBI pulled back from the brink. The RBI agreed to work out a loan restructuring scheme for SMEs for exposure of up to Rs 25 crore; decided to take part in a panel to work out the use of its reserves and also decide on how to ease lending norms to banks.
Ahead of the November 19 meeting, efforts at top levels of the government to douse the fire appeared to have helped after the government invoked for the first time a provision in the RBI law — Section 7 — to open a formal discussion with the Governor amid speculation that he would consider quitting.
Patel has served as Deputy Governor overseeing the monetary policy department at the RBI under Rajan and was known as his “inflation-warrior.”
Patel, who has worked with the International Monetary Fund, Boston Consulting Group and Reliance Industries, among other organisations, took over after Rajan completed his three-year term on September 4. Patel is among the few with a corporate background to become RBI Governor, the top post at Mint Street that has been previously held by mostly bureaucrats and economists.
Responding to the resignation, Prime Minister Narendra Modi said Patel is a “thorough professional with impeccable integrity,” who leaves behind a “great” legacy. “We will miss him immensely,” he said. “He’s an economist of a very high calibre and insightful understanding of macroeconomic issues. He steered the banking system from chaos to order and ensured discipline.”
Said Finance Minister Arun Jaitley: “The Government acknowledges with deep sense of appreciation the services rendered by Dr Urjit Patel to this country both in his capacity as the Governor and the Deputy Governor of the RBI. It was a pleasure for me to deal with him and benefit from his scholarship…I wish Patel all the very best and many more years of public service.”