Urjit Patel resignation: Modi Govt. was trying to turn RBI into a “board-managed company” -Chidambaram…
NEW DELHI : The unexpected departure of RBI Governor Urjit Patel, who cited personal reasons for his resignation, stirred questions about the independence of the central bank amid a public spat with the government. Patel resigned as Reserve Bank of India Governor on Monday amid growing differences with the government over a range of subjects including the central bank’s autonomy.
“On account of personal reasons, I have decided to step down from my current position effective immediately,” said the 55-year-old in the letter announcing his shock resignation, with over a year left in his term. He was the 24th RBI governor and was appointed on September 26, 2016, for a three-year term.
Prime Minister Narendra Modi said that the governor of the Reserve Bank of India, Urjit Patel, who abruptly resigned on Monday had steered the banking system from chaos to stability. “Under his leadership, the RBI brought financial stability,” Modi said in a tweet.
“Dr Urjit Patel is a thorough professional with impeccable integrity. He has been in the Reserve Bank of India for about 6 years as Deputy Governor and Governor. He leaves behind a great legacy. We will miss him immensely.” “Dr Urjit 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,” Modi added.
Finance Minister Arun Jaitley also reacted to Patel’s resignation and appreciated his services. “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,” he said.
Prime Minister Narendra Modi, accused by the opposition of trying to bully the RBI, tweeted that Dr Patel “steered the banking system from chaos to order and ensured discipline”. The words did not soften the sting of opposition criticism over the exit. The stunning exit comes four days before an RBI meeting to discuss what is called a “Governor’s report” on the status of subjects raised by government nominees at a meeting last month.
The resignation, though widely anticipated amid the escalating feud, was “surprising”, said RBI central board member S Gurumurthy, a representative of the government on the RBI board. “The previous meeting was held in such cordial atmosphere it comes as a shock,” said Mr Gurumurthy.
The government has been putting pressure on the RBI to ease its regulatory curbs on some banks, infuse more liquidity and relax capital norms as it faces a slowing economy ahead of general elections due by May. In the last meeting, the RBI had agreed to set up a panel on sharing surplus reserves and restructure loans of small businesses up to Rs. 25 crore. This meeting, which had brought Mr Patel face-to-face with some of government nominees on the RBI Board, was supposed to have ended on a conciliatory note.
However, various reports had said that the tensions between the RBI and the government were likely to re-surface during Friday’s meeting. According to sources in the Govt. , that on Friday, a majority of the 18-member RBI board intended to press for reduced curbs on lending and governance changes that would have given the board more say.
The RBI board is an advisory body that guides the regulator, leaving decision-making to the governor and his colleagues. But news agency Bloomberg had reported that the government is proposing changes that will enable closer supervision of the central bank. Mr Patel’s resignation was predicted by many opposition leaders as the government reportedly pulled out the hardly-used Section 7 of the RBI Act, which gives it special powers to direct the central bank in the name of public interest.
The friction between the government and the RBI exploded in November, when Deputy Governor Viral Acharya, giving an example of the Argentinian government’s interference in the central bank, had said that undermining a central bank’s independence could be “potentially catastrophic”.
Meanwhile, former RBI governor Raghuram Rajan said that Patel, through his resignation, made a statement. He said, “I think Dr Patel has made a statement. I think this is the ultimate statement a regulator or a civil servant can make. I think his statement should be respected. 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 …”
Former Finance Minister Yashwant Sinha also said the resignation is a clear sign of the government trying to interfere with the working of the RBI,” he said. Congress President Rahul Gandhi said that Patel’s move to resign is to protect the institution of RBI. “Taking away reserves from RBI to save your skin is an act against this nation. I’m very proud that people from all walks of life and institutions are standing up to it,” he said.
Meanwhile, RBI deputy Viral Acharya has not resigned, a spokesman from the RBI clarified on Monday following speculation that Acharya would also step down following governor Urjit Patel, television channel CNBC TV18 said. Tensions between Modi’s government and the RBI came to the fore in October after a scathing speech by Acharya blew the lid off a fractious dispute between the two on issues ranging from lending curbs, more cash availability to the non-banking finance companies (NBFCs), to who controls the institution’s reserves.
That speech by Acharya roiled markets and prompted the government to issue a statement in support of the central bank’s autonomy. Many viewed Acharya’s comments as a sign that the RBI was pushing back hard against government pressure to relax its policies and reduce its powers ahead of a general election due by May.
Former Finance Minister P Chidambaram has accused the government of trying to turn the Reserve Bank of India into a “board-managed company” in the wake of Governor Urjit Patel’s surprise resignation. “The government’s intention is to one: convert the RBI to a board managed company,” Chidamabaram told News Agency BloombergQuint in an interaction. “And two: immediately grab its surplus reserves to meet its fiscal deficit for the year and spend its way in an election year.”(With Agency Inputs)
