In his new book, 'Overdraft: Saving the Indian Saver', former RBI Governor Urjit Patel revealed what led to his rift with the Modi government and his subsequent resignation. Patel wrote that the government's move to dilute a new bankruptcy law caused disagreements between the government and the central bank.

The rift centred around a February 2018 circular by the RBI that forced banks to immediately classify borrowers as defaulters if they delayed payments. The circular also barred founders of defaulting companies from buying back their firms during insolvency auctions. Patel said in his book that the government seemed to lose enthusiasm for the legislation mid-way and appeared to go easy. Patel said that till then the Finance Minister and he were on the same page.

"Instead of buttressing and future-proofing the gains thus far, an atmosphere to go easy on the pedal ensued. Until then, for the most part, the finance minister and I were on the same page, with frequent conversations on enhancing the landmark legislation's operational efficiency," said Patel.

He added that there were calls to roll back the circular. There was also misinformation floating that aimed to "discredit the rules" with incorrect suggestions such as how the rules would disproportionately impact small businesses. 

The Supreme Court eventually struck down RBI's February circular. Patel said that the decision "made the insolvency regime vulnerable, possibly brittle". He also warned that subsequent changes might reverse the gains that were made in an effort to clean up what is one of the world's largest bad-loan piles.

Governor Shaktikanta Das' rules sought to give lenders 30 days to review a defaulting account and another 180 days to implement a resolution plan. It also lifted the deadline to push defaulters into bankruptcy. Patel wrote that since the time-bound threat is not credible anymore, it is unclear what would compel resolution in 180 days.