Reserve Bank of India Governor Dr. Urjit Patel Resigned
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Reserve Bank of India Governor Dr. Urjit Patel Resigned

By IndraStra Global News Team

Image Attribute: The file photo of Dr. Urjit Patel / Source: Press Trust of India (PTI)

Image Attribute: The file photo of Dr. Urjit Patel / Source: Press Trust of India (PTI)

The Reserve Bank of India (RBI) Governor Dr. Urjit Patel has resigned, citing personal reasons. Dr. Patel said he was resigning on account of personal reasons.

Dr. Patel offered the following statement;

"On account of personal reasons, I have decided to step down from my current position effective immediately. It has been my privilege and honor 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 have 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." 

The government did not state the reasons for Dr. Patel’s resignation. However, Finance Minister Arun Jaitley expressed his views through series of tweets "The government acknowledges with a deep sense of appreciation the services rendered by Dr Urjit Patel to this country, both in his capacity as a governor and the deputy governor of the RBI. It was pleasure for me deal with him and benefit from this scholarship".

And, on this matter, Dr. Raghuram Rajan (Former RBI Governor) said - "I think this is something all Indians should be concerned about because the strength of our institution is really important both for growth and sustainable growth in equity and the economy."

RBI and the Ministry of Finance (MoF) have been at loggerheads since October (2018) on three key issues that are related to liquidity, credit flow and the controls governing weak banks, especially the Public Sector Banks (PSBs). The government was seen to be ramping up pressure on RBI to release the reserves, which, critics said, would help boost the economy in an election year. Lately, it was reported that the central government could use its powers under Section 7 of the RBI Act to override Dr. Patel (in case RBI goes against the government's will). This particular section empowers the government to issue directions in public interest to the central bank, which otherwise does not take orders from the government.

However, during the last board meeting of the RBI (held on November 19) both the parties (RBI and MoF) agreed on working together finally. And, consequently, in the fifth bi-monthly Monetary Policy Committee (MPC) meeting (held on December 5), Dr. Patel did not touch the conventional repo rates nor did he lower the cash reserve ratio (CRR) for more money to flow into the system. But, he chose to open multiple other unconventional taps which could ensure system-wide cash flow on a gradual basis to take care of a credit crunch. One such tap is the statutory liquidity ratio (SLR), which RBI has decided to reduce by 25 basis points to 19.25%, effective Jan. 01, 2019. It also said the SLR would be reduced by 25 basis points (or 0.25 percentage points) every quarter until it reaches 18%. 

Dr. Patel's resignation came just days before RBI's next board meeting which is scheduled for December 14. His resignation is a critical development and giving enough ammunition to the opposition's salvo to target the Modi administration in the upcoming general election (due to be held in April/May 2019).