NEW DELHI: Four days ahead of a Reserve Bank of India board meeting and after a prolonged and bitter stand-off with the government, Urjit Patel – who took over as RBI governor just before demonetisation – issued a statement late Monday afternoon announcing his resignation “effective immediately”.
Kenya-born Patel, 55, the first governor in the post-liberalisation era to quit before the end of his term, said it was “on account of personal reasons”. But there were few takers for that explanation – although a couple of people who know him well told TOI on condition of anonymity that the last few months of mounting tension had taken a toll on his health and he had begun to wonder if it was “worth it”.
“He was clear that he neither wanted, nor would he get, an extension beyond his current three-year term which was to end next September. For him the cost of quitting wasn’t very high. Also, he felt the government was pushing too hard, to the point of undermining the RBI’s autonomy,” said one of these people.
TOI was the first to report – in its lead story of October 29 – that “tensions between Patel-led RBI and the government have come to a head” and that “questions have arisen over his continuance”.
Still, Patel’s resignation took many by surprise because of the general perception that the storm kicked up by the October 23 board meeting had passed with the subsequent meeting, on November 19, marked by “cordiality”.
Even the government appears to have been taken unawares by the sudden exit of a governor it had handpicked as Raghuram Rajan's successor. Tellingly, while Patel thanked his RBI colleagues, his farewell statement was devoid of even a ritualistic acknowledgement of anyone in the government.
The government, on its part, did not seem unduly perturbed, with plans already afoot to install his successor as early as next week.
While on paper, the RBI had at the last meeting agreed to review a number of issues, sources at Mint Street said this was done under government pressure, and Patel wasn’t happy about it. Also, at the next board meeting, on December 14, the government was expected to push for a discussion on the central bank’s governance structure, the implication being that the board—which comprises 11 external members and two government nominees compared with five from RBI—would play a bigger role.
Unlike most major announcements, which come on the weekend, giving markets time to digest the news, Patel chose a Monday to step down, a day before the winter session of Parliament begins and five assembly results are announced.
In the offshore market, rupee non-deliverable forwards (derivatives based on the local value of the rupee) fell by over 1.5%, indicating that the rupee would open weak on Tuesday. Market players reckon that stocks and bonds may also be impacted.
While certain political appointments to RBI’s board had nettled the central bank management, the initiation of discussions under the never-before invoked Section 7 of the RBI Act (reported by TOI on October 31) pushed Patel into a corner, according to central bank insiders. The last straw was the RBI board assuming a larger operational role, leaving Patel with little room to manoeuvre. For the first time in RBI’s history, a diverse set of people would have a say on issues such as capital adequacy ratio for banks. This, people in RBI said, prompted Patel to take the ultimate step of dissent for a government employee.