The continuing standoff between the Government and the RBI finally claimed the chair of Governor Urjit Patel, who resigned on Monday citing “personal” reasons, something not many people are ready to digest.
Patel, 55, who took over as the 24th Governor of the Central bank on September 5, 2016, had the shortest tenure at the RBI since 1992.
“On account of personal reasons, I have decided to step down from my current position effective immediately,” Patel said in a brief statement.
The Government and the RBI stood divided over several issues, including transfer of surplus reserves to the Government. The Government also wanted the RBI to provide additional liquidity to credit-starved MSME sector in the wake of ILFS bankruptcy and align Prompt Corrective Action ( PCA) norms for public sector banks with global practices.
Though Patel has cited “personal” reasons for his resignation, his ouster was on the cards ever since the Government threatened to invoke certain provision of the RBI Act to force him to consider its views on relaxing lending norms for segments such as small and medium enterprises, appropriate size of reserves the Central bank must maintain and easing norms for weak banks.
On October 27, RBI Deputy Governor Viral Acharya said Governments that “don’t respect the RBI’s 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”.
It is understood that with an eye on the next year’s poll, the Government would like to corner a portion of the RBI reserve to launch series of populist measures. The need for liquidity for the MSME sector and NBFC are also uppermost on the agenda of the Government to prevent slide in the stock market and give a push to the lending scenario.
Soon after Patel quit as RBI Governor, Prime Minister Narendra Modi on Monday lauded his contribution saying he steered the banking system “from chaos to order” and ensured discipline. He said Patel is a thorough professional with “impeccable integrity”.
The PM said Patel leaves behind a great legacy and will be missed immensely. “Dr Patel is an economist of a very high calibre with a deep and insightful understanding of macro-economic issues. He steered the banking system from chaos to order and ensured discipline. Under his leadership, the RBI brought financial stability,” the PM tweeted.
Finance Minister Arun Jaitley too appreciated the service rendered by Patel saying it was a pleasure to deal with him and he has benefitted from his scholarship. “The Government acknowledges with deep sense of appreciation the services rendered by Dr 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,” Jaitley tweeted.
The Opposition has slammed the Government over Patel’s resignation. Emerging from the Opposition parties’ meeting, Congress president Rahul Gandhi said, “RBI Governor is resigning because he’s protecting the institution of RBI. Taking away reserves from RBI to save your skin is an act against this nation. I am very proud that people from all walks of life and institutions are standing up to it.”
West Bengal Chief Minister Mamata Banerjee said, “From CBI to RBI, institutions have become total disasters; it is matter of great shock. BJP is
behaving like dictators, there should be a campaign against this rule.”
Senior Congress leader Kapil Sibal said, “People he (PM Modi) appointed are resigning, first Arvind Subramanian left as the Chief Economic Adviser and now it’s Patel. The economy is suffering and Modi thinks that he’s the biggest economist and he doesn’t need them, so they are resigning.”
Former Finance Minister P Chidambaram said he is saddened but not surprised by the resignation of Patel as RBI Governor and claimed no self- respecting scholar or academic can work in the NDA Government.
In a series of tweets, the senior Congress leader said the last meeting of the RBI Board held on November 19 was the “day of reckoning” and Patel should have resigned on that day. “Patel may have thought that Government will re-trace its steps. I knew it would not. Good he quit before another humiliating meeting. Saddened, not surprised, by Patel’s resignation. No self- respecting scholar or academic can work in this Government,” he said.
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Urjit quits amid RBI-Govt feud
Patel’s predecessor Raghuram Rajan said “all Indians” should be concerned as strength of institutions is important for growth and development.
“I think Dr Patel has made a statement and I think this is the ultimate statement that a regulator or a civil servant can make. I think the statement should be respected,” Rajan told a news channel.
“We should” go into the details as to why there was impasse, which forced this ultimate decision, he noted.
“I think, this is something that all Indians should be concerned about because strength of our institutions is really important for our growth, sustainable growth and equity in the economy,” said Rajan, who completed his three-year term as RBI Governor in September 2016.
In his statement, Patel thanked his colleagues at the RBI but made no mention of the Government or the Finance Ministry.
“It has been my privilege and honour to serve in the RBI 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.
Patel had more than eight months of the first three-year tenure left and was eligible for a second term as was given to several of his predecessors barring Rajan.
Prior to taking over on September 6, 2016, he was a 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 the Mint Street that has been previously held by mostly career bureaucrats and economists.
Patel was the eighth Deputy Governor at RBI to be made Governor, the last being YV Reddy. Besides, at least five former Governors had served at IMF before becoming RBI chief, while a few others went on to work at IMF after leaving the Central bank.