Urjit Patel, governor of the Reserve Bank of India (RBI) looks on during a news conference in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Urjit Patel Resigns As RBI Governor

Reserve Bank of India Governor Urjit Patel has resigned from his post, making him the first governor since 1990 to step down before his term ends. Patel’s three-year term was to end in September 2019.

“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.”

This statement by Patel was published by the central bank on its website.

A government official told Bloomberg that the RBI Governor had not informed the government before resigning. India will appoint a governor as soon as possible, the official said, asking not to be identified as the person isn’t authorised to speak to the media.

Soon after, Prime Minister Narendra Modi shared a statement on social media.

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. 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.

Finance Minister Arun Jaitley also shared his response on social media. He said “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.”

A government official told BloombergQuint that a search committee will be appointed to select the next governor. He did not want to be named.

Reacting to the news of Patel’s resignation, former RBI Governor C Rangarajan said, in an interview with BloombergQuint, that he was deeply surprised at the development.

I was under the impression that in the last meeting many of the contentious issues were resolved even though there were some that were left out. I do not know what happened in between.
C Rangarajan, Former RBI Governor

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Former finance minister and a veteran leader of the Indian National Congress party P Chidambaram said Patel should have resigned on Nov. 19 itself - the day of the previous RBI board meeting.

Speculation of Patel’s exit had picked up after differences between the RBI and the government spilled out in the open. This first happened a couple of months ago when RBI Deputy Governor Viral Acharya delivered a hard hitting speech on the need to ensure the independence of the central bank. The speech was delivered with the backing of Patel, suggested the footnotes in Acharya’s speech.

The provocation of that speech, BloombergQuint reported, were letter sent by the government seeking consultations under a rare provision of the RBI Act. The provisions, laid down under Section 7 of the Act, allow the government to give directions to the central banks considered necessary in public interest in consultations with the Governor.

Also read: BQExplains: The Points Of Friction Between RBI And Government Ahead Of Crucial Board Meet

The contentious issues were discussed in a 9 hour-long RBI board meeting on Nov. 19, in which both sides seemed to have softened their stance.

Also read: RBI Board Meeting: Central Bank To Revisit Economic Capital Framework, Consider Restructuring Scheme For Stressed MSMEs

The next RBI board meeting was scheduled for December 14. Patel has resigned just days before that.

S Gurumurthy, right wing ideologue and government appointee on the RBI board said he was surprised by Patel’s move.

“I don't think he should've quit. But then he is not the first governor to quit, he is the fourth,” said senior journalist TCA Srinivas Raghavan.

He shouldn’t have quit. The position is extremely important. And whatever differences you might’ve had with the government, you don’t quit. Because it impacts the country, the economy, the image of the country, the image of the government. So whatever be the provocation unless you are specifically asked to resign, like has happened in three cases previously, you should not quit. I am not terribly happy with what he has done.
TCA Srinivas Raghavan, Senior Journalist

Kapil Sibal, a leader of the Indian National Congress, spoke to BloombergQuint on Patel’s resignation. “I think in the last couple of years the Governor has shown he is a reticent man. I am reminded of Macbeth where he said I feel cabined, gripped, confined, bound in to saucy doubts and fears. That's I situation I guess Urjit Patel found himself in.”

Also read: Government Wants To Turn RBI Into A Board-Managed Company: Chidambaram

Watch the BloombergQuint coverage here:

A Governor Wronged?

Patel’s relationship with the government got off a rocky start. Just two months into his tenure, the government announced demonetisation, which led to the withdrawal of 86 percent of the country’s currency in circulation. The decision had been opposed by Patel’s predecessor Raghuram Rajan.

Patel remained silent through much of the process of demonetisation and remonetisation. However, BloombergQuint had reported in November 2017 that the RBI would have preferred it if the government had deferred its decision until it had a larger stock of new currency notes printed. Recently, Indian Express reported that the RBI had made “significant observation” on some of the justifications given by the government for its demonetisation decision.

As the demonetisation experiment passed, the reticent Patel turned his focus to banks and took a tough stance with both public and private banks. This has led to increased run-ins with the government.

Eleven weak public sector banks have been put under the RBI’s prompt corrective action, restricting them from expanding till they clean-up their balance sheets. While the government had earlier supported the framework, it has since changed its view and has been calling for a relaxation of the framework.

A Feb. 12 circular, which asked banks to begin resolution of stressed accounts a day after they delayed payment, has also led to a public battle between the government and the RBI in court.

Patel’s objective, though, was to clean-up banking, both private and public. He has been equally tough on private banks that were seen to be lax in meeting governance and compliance standards set by the RBI. Two private bank chief executives - Shikha Sharma and Rana Kapoor - have been denied a term extension. A third - Chanda Kochhar - has stepped down due to allegations of impropriety. It is not clear whether the RBI had a role in her removal.

Patel’s exit means the central bank has now seen two quick transitions. His predecessor Raghuram Rajan left at the end of his three year term but had indicated his decision to leave even before the government could come to a final decision. Patel exits with a few months to spare in his current three-year term. Former governors D. Subbarao and Y.V. Reddy both spent five years each at the helm of the central bank.

Also read: In Government-RBI Spat, Reserve Bank Escapes With A Few Burns And Bruises