Urjit Patel, who quit as the RBI Governor on Monday, had spoken strongly about the need for the central bank’s autonomy when he deposed in front of the Parliamentary Panel on Finance two weeks ago.
The former Governor had also pointed out that non-performing assets had been reducing since their peak in March and that bank credit growth was improving to healthy levels. On demonetisation, his submission was that though the effect lingered on some food items, the impact was transitory for the economy as a whole.
According to sources present at the meeting, and as reported at the time by The Hindu , Dr. Patel strongly made the point that depositors’ interests were of primary importance and that central bank autonomy on this was non-negotiable.
He added that setting monetary policy must also be the exclusive domain of the RBI.
Dr. Patel further said that it was of utmost importance to maintain the central bank’s reserves as this was essential to maintain the country’s AAA rating.
The issue of central bank autonomy erupted in public again following RBI Deputy Governor Viral Acharya’s speech in October in which he cautioned against the Centre curtailing RBI’s autonomy and trying to direct its policy on key issues such as the prompt corrective action (PCA) norms, the classification of power sector NPAs, and the quantum of surplus to be transferred to the Centre.
Data provided to the committee by Dr. Patel showed that gross NPAs of all scheduled commercial banks were at ₹10.36 lakh crore at the end of the March 2018 quarter, and subsequently fell to ₹10.14 lakh crore by the end of the September quarter.
“The Monetary Policy Committee observed that the transitory effects of demonetisation had lingered on in price formations relating to salient food items, entangled with excess supply conditions with respect to fruits and vegetables, pulses and cereals,” the RBI said in its submissions to the Standing Committee.
“At the same time, the effects of demonetisation on the broader economy were sector-specific and transient.”