Ratings agency Fitch said on Wednesday that the sudden resignation of Urjit Patel as RBI Governor, following government pressure on the central bank to spur economic growth, highlighted risks to the RBI’s policy priorities.
“The RBI’s efforts to address bad loan problems have the potential to improve banking-sector health over the long term and its commitment to inflation targeting has supported a more stable macroeconomic environment in recent years. Increased government influence on the central bank could undermine this progress,” Fitch said.
The rating agency said the full implications of Dr. Patel’s resignation will only become clearer once there is some indication of the RBI’s policy approach under new Governor Shaktikanta Das.
A roll-back of measures that address long-standing bad-loan problems and restrict the growth of weakly capitalised banks could have a negative impact on the credit profiles of affected banks and increase risks in the financial system, Fitch said.