Corproate executives and economists that Moneycontrol spoke to expressed concerns of instability at the RBI and the impact it will have on attracting long-term investments.
The corporate sector in India was taken by surprise on December 10 with Reserve Bank of India Governor Urjit Patel's decision to setp down.
Patel has resigned from the post citing personal issues.
Analysts attributed the resignation to the simmering differences between RBI and government over the former's autonomy as the Centre has sought to reduce curbs on lending and to gain access to RBI reserves.
"On account of personal reasons, I have decided to step down from my current position effective immediately," Patel said in a brief statement.
Corporate executives and economists that Moneycontrol spoke to have expressed concerns of instability at RBI and the impact it will have on attracting long-term investment in India.
One executive on the board of a public sector bank called the resignation a "sensitive" matter at this juncture.
The executive said he didn't expect Patel to resign as the RBI had recently signaled that the government and central bank had compromised by agreeing to study a demand for sharing a part of its capital.
A chief executive officer of a South-based bank echoed the same.
"The news of the exit had died down after the board meeting. But we had heard that the surplus transfer issue was not resolved amicably. With its autonomy at stake, I believe that the governor took this call," he added.
"RBI Governor #UrjitPatel resignation gives me mixed emotions. There should always be healthy creative tension between RBI and government; but when it turns to destructive tension one of the parties have got to wilt," Harsh Goenka, Chairman of RPG Group, tweeted.
Sending wrong signals to global investors
"This was unexpected," said Sujan Hajra, Chief Economist at Anand Rathi Financial Services.
"This seems the culmination of the differences of opinion between government and RBI on a large range of issues. We had the feeling that the difference are bridging but today’s event suggests otherwise. This will create uncertainty. Appointment of a credible governor quickly can dispel the situation," Hajra said.
A chief investment officer of a large private life insurance company said that Patel's sudden exit will present a wrong picture about the Indian market and that foreign inflows could be curtailed for the next few weeks.
"Instability in the role of RBI and its independence is not good for attracting long-term investment in India," said Bhagwan Chowdhry, Professor of Finance, UCLA Anderson School of Management and Visiting Faculty, ISB.
"This may also rile the markets and cause volatility in the short-term. The government should leave RBI alone and allow it do its job well; price stability, robust banking supervision and regulation and establishing robust and competitive financial institutions essential for supporting growth in the Indian economy," Chowdhry added.
