Urjit Patel resignation: Reticent but independent-minded RBI governor who found his voice

Mumbai: From being considered government’s man on the Mint Street, outgoing RBI governor Urjit Patel had in less than two-years emerged from the shadows to find his own voice on issues that mattered the most — autonomy and independence of the central bank. From facing flak for allegedly toeing the government line on the shock decision to overnight junk 86 per cent of the currency in circulation, he overcame all that as he followed “wisdom of an owl” in clamping down on loan defaults and cleaning up bank balance sheets. Succeeding an outspoken governor with ‘rockstar’ appeal, Patel was often considered reticent, rigid, uncommunicative and someone who appeared reluctant to meet and consult not just finance ministry officials but his own colleagues in the bank. [caption id=“attachment_4095761” align=“alignleft” width=“380”] File image of Urjit Patel. AFP.[/caption] But the 55-year-old Patel, who Monday announced his decision to step down as the RBI governor, nearly nine months before his three-year term was to come to an end, meticulously conducted the “deep surgery” initiated by his predecessor Raghuram Rajan to clamp down on loan defaulters, while seeking to safeguard the Indian banking system from any collateral damage. The resignation came just days ahead of the 14 December meeting of the board of RBI that was to take up issues like governance in the central bank. Patel, who is the first governor to resign since the 1990s, cited personal reasons for the resignation but industry watchers say there were undercurrent since the the government cited hereto never-used-before provisions of the law to bring him to negotiating table on issues it felt were of national interest. The friction between the RBI and the Finance Ministry was attributed to the recalcitrance of Patel, who appeared keen to be seen as a defiant, independent-minded governor of high credibility by resisting the government’s call for increased transparency on the central bank’s reserves (just how much is necessary for stability operations) and for enhanced liquidity so that credit can be eased to money-strapped sectors especially MSMEs. Hailing from a business family based in Nairobi, Patel, who studied at London School of Economics, Oxford and Yale University, was a Kenyan national until 2013. He acquired an Indian citizenship before he was appointed deputy governor of the RBI in January 2013. While he maintained central bank’s independence in handling bad loan cases, RBI drew criticism for taking an awfully long time to disclose the final number of junked currency notes that came back to the system – something which suited the government. But genesis of his resignation may have been in the recent escalation of tensions between the RBI and the government after the finance ministry initiated discussion under the never-used-before Section 7 of the Reserve Bank of India Act, 1934, which empowers the government to issue directions to the RBI Governor. RBI deputy governor Viral Acharya had in a speech in October talked about the independence of the central bank, arguing that any compromise could be “potentially catastrophic” for the economy. The issues that brought them head on included appropriate size of reserves the central bank must maintain, easing of lending norms to ease liquidity rules certain sectors and guidelines for weak banks. Among the flashpoints in the dispute between the two was an RBI circular in February that tightened default norms. Also, the RBI resisted the state’s request for a higher payout from the central bank’s reserves, apart from measures that the government had sought to increase credit growth in order to boost economic activity and generate jobs. Over the past weeks, however, both sides had appeared to have toned down their criticism of each other. This was also reflected in the decisions taken at the 19 November meeting of the RBI board to form an expert committee to study the issue of reserve. The panel is yet to be formed as there are differences over who should head the committee. Another board meeting is scheduled for 14 December to discuss governance issues. Within a month of Patel taking over the top job at the RBI, the Monetary Policy Committee (MPC) framework was introduced to collectively decide on interest rates and has been generally successful in achieving its primary objective of keeping inflation under a pre-stated target. Another important direction from the RBI early in Patel’s tenure has been with regard to credit information companies - that provide access to individuals about their credit history. Also, the apex bank worked on new guidelines for tackling cyber-security concerns and pre-emptive cautionary warnings and directions on evolving challenges posed by cryptocurrencies. Besides, the RBI also set up a new Enforcement Department as part of broader plan to develop a rule-based approach to deal with breaches of law, rules and directions and to make the enforcement process stringent and consistent. As the financial health of banks had deteriorated over the last few years, the RBI has revised norms for prompt corrective action and promptly imposed them on some public sector lenders. The new framework encourages banks to eschew certain riskier activities and focus on conserving capital so that their balance sheets can become stronger. While industry estimates peg overall NPAs at over Rs 10 lakh crore, the RBI has said the stressed assets (gross NPAs plus restructured standard advances) remained elevated at 12.1 percent of gross advances at end-March 2018. The RBI has also introduced measures to make banking easier for public, including for senior citizens and differently-abled persons. It has launched an aggressive awareness campaign on banking regulations and against frauds, and introduced a structured communication channel called ‘Mint Street Memo’. It got global praise for its communication activities from the Bank for International Settlements.