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In a clear signal of a major rift between the government and the central bank, Urjit Patel on Monday stepped down as RBI Governor, about nine months ahead of the completion of his three-year term.
This is only the second time since Independence that a sitting RBI Governor has quit. The previous one to do so was Sir Benegal Rama Rau, who resigned before his second extended tenure expired due to differences with the then Finance Minister.
While Patel cited “personal reasons” for his decision, the resignation follows feuds between the RBI and the government on a host of issues including those relating to central bank autonomy, transferring RBI’s excess reserves to the government and relaxing the Restrictive Prompt Corrective Action (PCA) framework for 11 state-owned banks.
The government had invoked the never-before-used Section 7 of the RBI Act to seek consultation on some of these issues when it found the RBI top brass not inclined to look into them.
RBI insiders say the government may temporarily appoint the senior most Deputy Governor, NS Vishwanathan, as the Governor.
The resignation comes just a day ahead of Parliament beginning its Winter Session, election results to five State assemblies being announced. The RBI’s central board is also slated to meet on December 14.
Sharp criticism
Patel’s exit drew sharp criticism from various quarters. Former RBI Governor Raghuram Rajan told a news channel the exit should be a matter of national concern. Former Finance Minister P Chidambaram tweeted: “Saddened, not surprised, by Dr Urjit Patel’s resignation. No self respecting scholar or academic can work in this government.”
Finance Minister Arun Jaitley chose to focus on Patel’s contribution. “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 Dr. Patel all the very best and many more years of public service,” he tweeted.
A man of few words, Patel, under whose watch the NDA’s government’s demonetisation exercise was carried out, was elevated as RBI Governor (after Rajan demitted office) on September 4, 2016 after serving as Deputy Governor since January 2013.
Patel’s legacy
The first meeting of the six-member Monetary Policy Committee (MPC) was held in October 2016 under Patel’s chairmanship.
The key policy measures taken under his leadership include putting in place the Scheme for Sustainable Structuring of Stressed Assets to provide flexibility in restructuring; permitting banks to raise funds through the issuance of rupee-denominated bonds overseas; revising the framework for Prompt Corrective Action (PCA) for banks for nursing them back to health; and asking banks to make suitable disclosures on provisions and bad loans.
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Full text of statement by Governor
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. 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.
Urjit R. Patel
10th December 2018
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