India: Urjit Patel quits RBI, citing personal reasons

• Urjit Patel unexpectedly resigned as Reserve Bank of India (RBI) governor on 10 Dec 18, citing personal reasons, following months of bickering between the regulator and the government over autonomy and the central bank’s hard line on cleaning up the financial system.
• Despite an apparent easing of tensions at the last RBI central board meeting, Patel’s tough stance against government demands on easing the prompt corrective action (PCA) for weak banks last week at the Board for Financial Supervision (BFS) meeting could have been the immediate trigger for the resignation, said people familiar with the matter.
• Another could have been an imminent push from the government to give the RBI central board greater sway over the regulator, they said.
• The central board, which had become the site of the battle between the RBI and government nominees, was scheduled to meet next on 14 Dec 18.
• The fact that part-time independent directors without expertise in central banking and possible conflicts of interest could be deciding on regulations was not palatable to the governor, said the people cited above.
• The government has argued that all stakeholders need to have a say in matters and that easier liquidity was essential for investment, employment generation and economic development.
• Among the flashpoints in the tussle between the two sides was the RBI’s dissent note on a proposed payments regulator, deputy governor Viral Acharya’s warning about the dangers of undermining regulatory autonomy and the government citing Section 7, which allows it to direct the central bank.
• The government also felt the RBI’s contingency reserves were excessive. But the recent liquidity squeeze and the inability of small and medium enterprises to access loans brought differences to a head, said the people cited above.
• The governor had been firm in his stance against amending PCA rules. “There wasn’t much the RBI was giving away in the last BFS meet,” said one of the persons citied above.
• “It is not as if the RBI is dependent on any particular individual,” said Rajiv Kumar, vice chairman of the NITI Aayog think tank, adding India’s institutional capabilities are very strong.
• The successor of Urjit Patel, who surprisingly resigned as RBI Governor with immediate effect, will be found by a high-level panel headed by the Cabinet Secretary.
• Once the panel finalises the name, it will be sent to the Appointments Committee of the Cabinet headed by Prime Minister Narendra Modi.
• According to sources, the government will soon initiate the process for appointment of new RBI Governor following the sudden resignation of Patel on 10 Dec 18.
• In the meantime, N S Vishwanathan, senior most deputy governor, may be made interim head of the RBI following the unexpected resignation of Urjit Patel, according to sources.
• Vishwanathan was appointed as RBI Deputy Governor on 4 Jul 16 for a period of three years.

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