Urjit Patel on Monday stepped down from his position as the Governor of the Reserve Bank of India (RBI) with immediate effect citing personal reasons.
Before becoming the 24th governor of the RBI on September 4, 2016, Patel was a deputy governor at the central bank. As the deputy governor in charge of the monetary policy, Patel had got an extension upon completion of his first three-year term on 10 January 2016.
A Kenya-born economist of international repute when brought to India during the United Progressive Alliance (UPA) regime, Patel had been recommended by the then prime minister, Manmohan Singh, in his application for an Indian passport. “He is very important for the country,” Singh had said.
Someone generally seen as avoiding controversy by keeping quiet, Patel was initially thought to be too close to the government, especially on issues such as demonetisation. But that illusion was broken soon, as Patel showed his inflexibility on policy matters like no other RBI governor had perhaps shown in the past. On demonetisation itself, he neither distanced himself from the decision nor endorsed it publicly. He and his team, however, made sure that cash was back in the system in a few months.
“Well, an owl is traditionally a symbol of wisdom. So we are neither doves nor hawks but owls, and we are vigilant when others are resting,” Patel had said once at a press conference.
Patel proved to be a fierce owl in his vigil. Under his watch, inflation remained firmly anchored, as the central bank followed a legislative mandate to keep consumer price index (CPI) -based inflation in the central point of 4 per cent (plus-minus 2 per cent).
Patel steadfastly refused to toe the government line on restructuring, default parameters, liquidating powerful business houses for defaulting, and remained firm on resolution of bad debts in Indian banks’ books even when the government openly favoured a much lenient approach to banks that had piled up huge bad debt on their books.
He and his deputy Viral Acharya made it clear that 11 public-sector banks must remain under the prompt corrective action (PCA) framework in order to be nursed back to health.
But what perhaps disappointed Patel most was the perceived lack of autonomy at the RBI, as confirmed by the International Monetary Fund.
In January 2018, International Monetary Fund (IMF) came up with its Financial Sector Assessment Program (FSAP), in which it found the RBI to be ‘Materially Non-Compliant’ on the matter of autonomy.
While the RBI had the budgetary autonomy and adequate resources, it never had a full discretion to take supervisory actions, the IMF noted.
“The RBI Act contains a number of powers enabling the central government to supersede decisions of the RBI. Although these powers have not been used in practice, they are broad and their existence undermines the RBI’s legal independence,” the IMF said in its report.
Against this backdrop, RBI came with its February 12 circular on non-performing loans and how to go about their restructuring. The central bank, in simple terms, said if a loan was due for more than 91 days, it was in default and recovery proceedings could be started against the account.
It led to a direct clash between the government and the RBI as the former wanted to dilute the provisions to favour power-sector companies.
The central bank even did not bother to send its representative to a meeting of the Cabinet committee on power sector loans, having earlier communicated its unwillingness to compromise on the February 12 circular on default.
In many ways, efforts to move Patel out was seen as having gathered momentum after that.
Patel also fought back, openly criticising the government at policy press conferences on issues like fiscal deficit and rising supply of bonds.
He also wanted the government to give the RBI more powers over public-sector bank boards.
At private sector banks, Patel made it clear that RBI won't tolerate any misgovernance, especially when it came to hiding bad loans.
Under Patel, Axis Bank, ICICI Bank and YES Bank saw their top management getting reshuffled as the CEOs did not get the desired extension of their tenures. These banks were also forced to cough up their hidden bad debts due to strict RBI audit.
Patel wanted the same control over public-sector banks as well. Armed with the FSAP report of the IMF, Patel said during a speech in Gujarat in mid-March that the legislative reality had “led to a deep fissure in the landscape of banking regulatory terrain: a system of dual regulation — by the finance ministry in addition to the RBI.”
Patel got his Doctorate from Yale University in 1990 and M Phil in economics from Oxford University in 1986.
His familiarity with Prime Minister Narendra Modi goes back to early 2000s, when he worked as a member of the board (and chairman of the audit committee) of Gujarat State Petroleum Corporation Ltd.
Patel worked as the president for business development at Reliance Industries Ltd in 2008 and 2009. His responsibilities in that position were to assess macroeconomic risks for overall business envelope, and make strategy on commercial approaches for hydrocarbon energy companies of climate change-mitigation policies.
In 2006 and 2007 he was the non-resident India Economics Fellow at Brookings Institution, Washington, DC, but he could not take up a full-time resident fellowship “due to family reasons”, Patel’s resume reads.
He was also instrumental in forming the Infrastructure Development Finance Company Ltd (IDFC) and served as its executive director between 1997 and 2006. He has worked in key government departments of the finance ministry, and he also closely worked with the RBI much before he joined the central bank.
Patel is remembered by old-timers for backing India aggressively during the reforms period in 1990-92 when he was at the Economist Program for the IMF, working on the US, India, Bahamas and Myanmar desks. He was later given the responsibility of being the deputy resident representative of the IMF in India between 1992 and 1995.