The Centre may have been quick to fill the vacuum left by the sudden exit of Dr. Urjit Patel as RBI governor, but the issues that probably led to his departure remain unresolved.
The government’s effort to make the RBI board responsible for major decisions was the last straw in the troubled relationship.
According to RBI sources, Dr. Patel decided to agree to some of the government’s demands such as reviewing the central bank’s capital and a scrutiny of banks under prompt corrective action, besides a debt recast scheme for micro, medium and small enterprises. In return, he seemed to have expected the government to give up its demand of making the management answerable to the board.
So far, the board has restricted itself to providing broader vision to the central bank and refrained from getting involved in specific policy decisions.
“Recent discourse relating to the Reserve Bank are of great concern for the institution, which has done yeoman service to this nation. We sincerely hope that status quo is maintained in respect of the governance structure of Reserve Bank as the same has stood the test of time,” the United Forum of Reserve Bank Officers & Employees said in a statement, expressing appreciation and gratitude for the leadership provided by Dr. Patel.
Sources in the central bank said Dr. Patel was in regular dialogue with the finance ministry on all issues raised by the government.
“There were both written as well as verbal communication regarding the issues between the governor and the finance minister. But it was surprising that despite the ongoing communication, the government decided to invoke Section 7 [of the RBI Act], for consultation,” a source said.
The issue of governance was to be discussed in the next board meeting scheduled December 14. Whether it still remains an agenda for the meeting is not known yet as the new governor might take some time to study the issue before discussing it in the board.
It is understood that the government has an elaborate plan to revamp the functioning of the board by setting up specific committees within the board on issues like technology, risk management, banking regulation and supervision.
Since such committees may comprise government nominees, there is an apprehension that the government might try to influence decision-making.