Indian central bank head quits after months of government pressure
MUMBAI, (Reuters) - The Governor of India’s central bank, Urjit Patel, resigned abruptly yesterday after a months-long tussle over policy with the government that has raised concerns about the bank’s independence as a national election nears.
Government officials have been pressuring the Reserve Bank of India to allow some bad-debt-laden public sector banks to lend more easily, and pushed for it to hand over some of its surplus reserves to help fund the fiscal deficit.
Prime Minister Narendra Modi’s ruling Hindu nationalist Bharatiya Janata Party (BJP), which must call national polls by May, faces anger in rural communities because of slumping farm incomes, and broader concerns about a lack of jobs growth in small businesses that are finding it hard to get banks to lend them money.
Getting control of the reserves would give the government more flexibility in spending on welfare policies and farm support schemes.
Patel cited “personal reasons” for his decision to immediately step down.
His resignation came four days before an RBI board meeting, and at a sensitive time for the government.
On Tuesday, votes in key state elections are due to be counted, with exit polls suggesting the BJP could suffer some major defeats at the hands of the opposition Congress party.
That scenario, and Patel’s resignation, are expected to roil Indian markets. On Monday, forward contracts tracking the rupee against the dollar outside of market hours posted their biggest fall in more than five years.
That added to earlier losses caused largely by concerns - triggered by the state exit polls - that next year’s election might end with a defeat for the probusiness Modi and a weak coalition government, leading to policy uncertainty.
Investors will want to know quickly who Patel’s replacement will be, and how that will affect the direction of financial and monetary policy, analysts said. There was no clear frontrunner, but one name being mentioned was former Finance Secretary Hasmukh Adhia who retired at the end of November.