Urjit Patel resigns, updates: Markets brace for uncertain opening on Tuesday as RBI governor quits on even of Assembly election results

RBI governor Urjit Patel resigns LATEST updates: The abrupt resignation of Urjit Patel leaves India’s financial system up for a rude shock. The first indication of this will come when the stock markets open on Tuesday, which also happens to be the day when five states will count votes for Assembly elections. With Patel resigning citing “personal reasons”, there is a fair amount of uncertainty surrounding what’s going to happen next in the RBI-government battle. P Chidambaram tweeted that he was saddened but not surprised by Patel’s resignation. He said that no self-respecting scholar or academic can work in the current central government. “19 November was the day of reckoning. Patel should have resigned on that day. Patel may have thought that government will re-trace its steps. I knew it would not. Good, he quit before another humiliating meeting,”  Chidambaram wrote on Twitter. Urjit Patel, 54, quit the post about nine months before his three-year term was to come to an end in September 2019. He stepped down just ahead of the scheduled meeting of the RBI Board meeting on 14 December to consider proposals like RBI governance and providing liquidity for Non-Banking Financial Companies (NBFCs). Prime Minister Narendra Modi praised the RBI governor who he said is a ’thorough professional with impeccable integrity’ for steering the banking system from “chaos to order” and for bringing financial stability in the country. Reacting on Patel’s resignation, former RBI Governor Raghuram Rajan said that, “All Indians should be concerned about governor Patel’s resignation,” Reuters reported. RBI’s independent director and RSS ideologue S Gurumurthy expressed shock at Patel’s resignation saying that it was unexpected as the previous meeting with the RBI governor was held in such a “cordial atmosphere”. Finance Minister Arun Jaitley took to Twitter to thank the RBI governor and wished him best for ‘many more years of public service’. RBI governor Urjit Patel has resigned. In a letter posted on the RBI website, Patel cited personal reasons for stepping down from his position, effective immediately. The letter said: “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.” After weeks of speculation and ‘will he?-won’t he?’,  Urjit Patel tendered his resignation  from the post on Monday afternoon, just a day before the crucial state Assembly election results in five states. Earlier on Monday, IMF chief economist Maurice Obstfeld criticised the Indian government, saying it must heed the RBI’s message on financial stability, Relations between the Mint Road and North Block soured since late October after the finance ministry mandarins started consultations under the never-before-used Section 7 of the RBI Act which empowers the government to direct the central bank to undertake certain policy measures in public interest. [caption id=“attachment_4095761” align=“alignleft” width=“380”] File image of Urjit Patel. AFP.[/caption] The government had sent three letters to the RBI before 10 October with nearly a dozen demands, which were replied to within a week. The government primarily wants the RBI to help the struggling non-bank lenders and MSMEs get some liquidity support, liberalise the prompt corrective action framework on 11 of the state-run banks and undertake other steps which will help push growth, while the RBI has been maintaining a conservative stance avoiding any bad precedents. The government, which is staring at falling revenue and a likely fiscal slippage, also wants the RBI to part with a large portion of it Rs 9.6 trillion of its cash surplus, which the central bank has been sternly opposing. As the public spat between the two got wider public attention, the RBI’s central board, at its 19 November meeting, had decided to climb down and decided to set up a panel to study the quantum of capital it requires apart from restructuring loans of up to Rs 25 crore to give a succour to the troubled MSMEs. At the policy review held last week, the RBI had said it is committed to act as a lender of last resort to NBFCs but underlined that it does not feel the necessity do so now. It also formed a panel to look at the issues plaguing NBFCs which will submit its report in June 2019. The frictions came to light through a public speech by deputy governor Viral Acharya, wherein he warned of investors’ wrath if the RBI’s autonomy is compromised. After reports of action under Section 7 came up, the government had tried to ease tensions by stating that autonomy is “essential” and an accepted governance requirement. Patel’s tenure Never a media favourite, Patel was  criticised for his passive role during the controversial demonetisation execution and the way the bad loan clean-up has been executed with aggression or even the way he and his colleagues at the MPC (monetary policy committee) have approached the interest rate policy. But, overall Patel has done a commendable job in sticking to the mandate of the RBI during difficult times despite heavy criticism and in an environment when political pressure becomes the predominant force in influencing the course of the economy. New RBI governors often see something big, really big happening in the immediate days after they take over charge. For D Subbarao, it was the global financial crisis. Within days after he took over are governor, Lehman Brothers filed for bankruptcy and all hell broke loose across financial markets. For Raghuram Rajan, it was the US Fed shocks and a freefalling rupee and for Patel, it was the demonetisation challenge thrown by the Narendra Modi government. Patel drew a lot of flak for the slow counting of old notes. When he appeared before a Parliamentary panel to explain the delay, Patel was ridiculed and criticised. He became the subject of social media jokes. But, it didn’t make sense to bay for Patel’s blood. He was an extra in the PM Narendra Modi show on demonetisation. In hindsight, this was also part of Modi government’s plan to gradually deconstruct the image of the central bank post the ‘rockstar’ Raghuram Rajan-era. But, if one excludes the demonetisation episode, Patel has played a crucial role in the RBI. It won’t be an exaggeration to say that Patel is the architect of India’s new retail price-focused inflation-targeting monetary policy infrastructure. It was a panel headed by Patel which gave shape to the CPI-inflation based policy and the formation of Monetary Policy Committee (MPC) structure. Monetary policy, which used to be a one-man show of the RBI governor till then became a team show, with the governor being only one member of the panel. The MPCs unrelenting focus on inflation target and its conservative stance on rate hikes/cuts worked well to bring inflation under control, although the fight is far from over even now. Patel has never been a darling of the media unlike his predecessor Raghuram Rajan, but more like a technocrat who kept his head down and worked hard. That was exactly what the Modi government wanted too and didn’t find that in the outspoken Rajan. Over the years, Patel has proved that he is his own man when it comes to taking calls on critical policy functions. In 2017, Patel and his colleagues at the MPC had the courage to say no to the finance ministry when it sought a meeting prior to the monetary policy. Patel also made a public pitch for more powers for the central bank in the regulation of state-run banks. The government retorted saying there are already enough powers with RBI to regulate PSBs and the debate is still on.