In a surprising move, Reserve Bank of India’s Governor Urjit Patel resigned on Monday, citing personal reasons, amid tensions between the government and the central bank on various issues.
In a statement, Dr. Patel, who was appointed the Governor in September 2016, thanked RBI employees and the board of directors and wished them the best for the future.
“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,” the Governor said.
According to sources, N.S. Vishwanathan, who is the seniormost among the four Deputy Governors, has been given charge till the government finds a successor. Mr. Vishwanathan was appointed as Deputy Governor in July 2016.
Met Modi last month
Dr. Patel had met Prime Minister Narendra Modi days before the November board meeting though it is not known what was discussed.
While there was intense speculation about the timing of Dr. Patel’s decision, sources indicate the government may have pressed for voting in case there was no agreement on issues of governance of the central bank and liquidity to NBFCs in the next board meeting.
“I am both saddened and surprised when all things looked to have been settled and resolved unanimously,” said RBI board member Satish Marathe.
According to sources, after the meeting of the Board for Financial Supervision, the Governor told other members that he will see them on Friday, at the next board meeting.
Former Governor D. Subbarao told The Hindu , “The market will be concerned not because of the resignation but that the government and RBI cannot establish a working relationship.”
The relationship which had already soured took a dramatic turn after the government invoked Section 7 for consultation purpose. Under the provision, which was never used, the government can issue directions to the RBI.
Lead to questions
“...the sudden resignation will lead to questions about whether the government is trying to stifle institutions and whether the resignation is a statement to protect the RBI’s independence,” Nomura said in a report to its clients.
All eyes are now on who will be the next Governor and how he navigates through the turbulent relationship. Sources indicate, the present government whose term ends in May 2019 will not take the risk of appointing another academician, so a bureaucrat could be a likely option.
After the present BJP government came into power in 2014, former RBI Governor Raghuram Rajan also declined to seek a second term. Mr. Rajan was appointed by the previous UPA government. There is speculation that Hasmukh Adhia, former Finance Secretary, who retired last month, and a close aide of Prime Minister Modi, could be appointed as the next Governor.
“The government will now start the process of looking for the next RBI Governor, which could take 2-3 months. We will follow up on the names of potential candidates in the coming weeks, but the list could encompass internal and external candidates,” Nomura said.