RBI Guv Urjit Patel resigns

Following months of charges and counter-charges, it finally boiled down to this – the RBI board is scheduled to meet on December 14 with a single point agenda to change the bank’s governance structure. The government wants the RBI governor to be accountable to the board. Patel, obviously, was opposed to the idea.

Under the current structure, the bank has four deputy governors, four directors from the RBI’s local boards, two government nominees and others appointed by the government -- overall 18 directors. However, the role of the board currently is consultative. The final word in any policy decision is that of the governor. Having failed to make successive governors bend to its demand, the government now wants to weaken the governor’s position.

The tussle that prompted the December 14 meeting is not the first instance of the government’s run-in with Patel. Unlike Rajan, the government gave no choice to Patel on demonetisation. Just a couple of months after assuming office, he was presented with the designs of the new currency notes to put his signature on. It was a fait accompli.

Even after the absolute failure that demonetisation was, the government was not willing to accept its folly. When it was first informed that nearly all demonetised currency notes had been returned to the bank, it asked for a recount. The recount came up with the same result – 99.3 per cent of demonetised notes were back in RBI’s treasury.

Then in October this year, RBI’s deputy governor Viral Acharya, in a lecture, warned about excessive interference in RBI functioning by the government. He was referring to two or three government-RBI flash points, though he did not spell them out in his lecture. The government wanted the norms governing financing of micro, small and medium enterprises eased.

The government also wanted the RBI to hand over a substantial part of the Rs.9.69 lakh-crore reserves as an additional dividend to it to meet its fiscal targets. It also wanted the RBI to ease the liquidity crunch faced by non-banking financial companies.

At the November 19 meeting to discuss the government’s demands an agreement was reached — the RBI board agreed to form a committee to look into the issue of transferring RBI’s reserve to the government; it also agreed to consider the issue of restructuring MSME loans where the amount due was not above Rs.25 crore. The issue of capital adequacy ratio for banks was also resolved to the RBI’s satisfaction with the government backing off. However, the government was still left dissatisfied. And thus came the demand to fundamentally change how the RBI board functioned, making it more pliant to Delhi. And that is when Patel decided to say enough was enough.

Well-known financial markets author-columnist Tamal Bandyopadhyay said the idea of making the RBI governor answerable to the board would work only if the board comprised top-drawer economists.

The fact is that a majority of appointments to the RBI board are political. The sacking of RBI Director Nachiket Mor by the Centre at the behest of Sangh Parivar outfits like Swadeshi Jagran Manch is a case in point.

In an interview immediately after Patel’s resignation, Raghuram Rajan said: “The act of resignation by a government servant or a regulator is really a note of protest. It is saying that the person cannot stay on given the kinds of policies that are being thrust upon them. It is really the only act that they have in their reservoir when faced with circumstances they cannot deal with. So, in that sense this should be a statement of protest and given that and given that Dr Patel is very honourable civil servant in some sense and a regulator I think we need to understand what prompted this act and I do not think Dr Patel is given to act in lightly, so I think the government must note.”

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