Reserve Bank Governor Urjit Patel who faced the possibility of an unprecedented action from the government over differences on a variety of issues, on Monday, resigned from his job citing personal reasons. His resignation was being speculated right from the time the government cited a never-before-used provision of the RBI Act to get 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.
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 Y V 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.
Contribution
Possibly, Patel’s biggest contribution to the central bank will be his work as the head of the committee which eventually led the way for the RBI to become an inflation- targeting one.
Patel’s three-year tenure was scheduled to end early September 2019 and he had hinted at rate cuts in the future if the RBI continues to see a dip in inflation.
Another important direction for customer benefit from Patel’s early days was to order bankers to make loan pricing more transparent by abandoning their opaque ways. He made banks to move on to a more transparent marginal cost of funds-based loan pricing from base rates and at the last policy meet he made it mandatory on banks to move to market-linked benchmark pricing from next April.
Patel also asked credit information companies to provide access to full credit report to individuals once a year for free.
Patel’s tenure had also seen the RBI working on new guidelines for tackling cyber security concerns, as also pre-emptive cautionary warnings and directions on evolving challenges posed by crypto currencies.
Face-off between RBI and Government
The friction between the RBI and the Finance Ministry was attributed to the recalcitrance of Patel, who appeared keen to be seen as a defiant, independent-minded governor of high credibility by resisting the government’s call for increased transparency on the central bank’s reserves (just how much is necessary for stability operations) and for enhanced liquidity so that credit can be eased to money-strapped sectors especially MSMEs.
While he maintained central bank’s independence in handling bad loan cases, RBI drew criticism for taking an awfully long time to disclose the final number of junked currency notes that came back to the system — something which suited the government.
On demonetisation, one of the major decisions where the RBI and government looked aligned the most, a recent media report on the minutes of RBI’s board meeting signed by Patel in December 2016 reveal the reservations that he and the RBI had on the move.
Within days of demonetisation, when he was being criticised by one and all for not speaking up, Patel had told PTI in an interview late November 2016 that RBI was taking all necessary steps to “ease the genuine pain of citizens” arising from the note-ban with a clear intent to normalise the things as early as possible.
But genesis of his resignation may have been in the recent escalation of tensions between the RBI and the government after the finance ministry initiated discussion under the never-used-before Section 7 of the Reserve Bank of India Act, 1934, which empowers the government to issue directions to the RBI Governor.
Among the flashpoints in the dispute between the two was an RBI circular in February that tightened default norms. Also, the RBI resisted the state’s request for a higher payout from the central bank’s reserves, apart from measures that the government had sought to increase credit growth in order to boost economic activity and generate jobs.
Over the past weeks, however, both sides had appeared to have toned down their criticism of each other. This was also reflected in the decisions taken at the November 19 meeting of the RBI Board to form an expert committee to study the issue of reserve. The panel is yet to be formed as there are differences over who should head the committee.
(Inputs from Agencies)
