Patel’s resignation highlights risks to RBI’s policy priorities: Fitch

Patel’s resignation highlights risks to RBI’s policy priorities: Fitch
  • 1
    Share

New Delhi, Dec 12: Fitch Ratings Wednesday said the resignation of Urjit Patel as Reserve Bank Governor highlights the risks to RBI’s policy priorities and increased government influence on the central bank could undermine the efforts to address bad loan problems.
Patel resigned abruptly from the post of the Governor on December 10, nine months before his term was scheduled to come to an end in September 2019.
The Government Tuesday appointed former Economic Affairs Secretary Shaktikanta Das as the new Governor.
“The resignation of the RBI governor … follows a period of government pressure on the central bank to spur economic growth, and highlights risks to the RBI’s policy priorities,” Fitch Ratings said in a statement.
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.
It said that 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 may increase risks in the financial system.
The rating agency said the full implications of Patel’s resignation will only become clearer once there is some indication of the RBI’s policy approach under his replacement, Shaktikanta Das.
“The central bank’s stance may still remain unchanged,” Fitch said.
However, with general elections due by May 2019, there will be “political incentive” for the government to push for more supportive RBI policies, it added.
Fitch said Patel’s resignation came after months of escalating government pressure on the RBI to ease some of the strains created by its clean-up of the banking sector.