The resignation of Urjit Patel as RBI governor once again highlights the traditional distraught nature of relations between the central bank and the government. Issues such as easing of the Prompt Coercive Action framework for PSU banks, boosting liquidity and credit to medium and small enterprises and Non-Banking Finance Companies (NBFCs), and transferring additional surplus from the RBI to the government were at the heart of the tussle between Patel and the Finance Ministry.
The long history of friction between the central bank and the government has led to the resignations of three RBI governors in the past before the end of their term. This includes RBI’s first and second governor Sir Osborne Smith whose governorship was marked by a tumultuous relationship with the Finance Ministry.
Here’s a look at the RBI Governors who did not complete their terms:
Sir John Osborne Smith (1935-1937)
Sir John Osborne Smith, who was the first RBI Governor (then Imperial Bank of India) and assumed his role in 1935, resigned his governorship in 1937 following the differences with the colonial government over interest and exchange rates. Even though his leadership garnered him much applause in banking circles in India, his outlook on policy issues fell foul with the government.
Sir Benegal Rama Rau (July 1949 to January 1957)
Rau resigned in the middle of January 1957 before his second extended term of office expired due to differences with the Finance Minister. The longest serving Governor of the RBI, Rau’s tenure saw the commencement of the Planning Era as well as encouraging steps towards co-operative credit and industrial finance.
However, the trigger for Rau’s resignation was when then PM Jawaharlal Nehru sided with finance minister TT Krishnamachari and made it clear that RBI was a department of the finance ministry.
S Jagannathan (June 1970 to May 1975)
S Jagannathan, the tenth RBI Governor, gave up his position to become the Indian Executive Director at the IMF. While his tenure did not witness any friction with the government, he pushed for the nationalisation of private banks and he was known for pursuing a very active monetary policy in the wake of unprecedented inflation.