The resignation of RBI Governor Urjit Patel, unexpected as it was, was being predicted for a long time. Existential conflicts between the RBI and government had caused stress in the system. Of the many triggers, the question of credit flow from public sector banks (PSBs) must top the list.

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The RBI has been under pressure to ease lending curbs on PSBs as 11 banks have been put under Protective Corrective Action (PCA). These banks have not been able to lend and its impact can be felt on several sectors of the economy.

Besides, the government wanted RBI to part with some of its capital reserves to help bridge a fiscal deficit and boost a slowing economy ahead of the General Elections next year. While handling bad loans and in its endeavour to clean up the balance sheet, the collateral damage has been credit flows.

If credit flows slow down, it not just affects the economy but also promoters of large companies and infrastructure growth. The pressure on the government and the RBI from companies facing insolvency proceedings, is always immense.

While the introduction of the Insolvency and Bankruptcy Code (IBC) in 2016 has been hailed as a significant achievement of the Modi government, winning praise from global multilateral institutions, local stakeholders have reacted differently to it.

Insolvency proceedings make it mandatory for companies and their proxies not to bid for stressed assets. Credit flow and IBC have affected companies in telecom, real estate, power, roads, cement, virtually the entire core sector.

This means that both the government and the RBI have to balance multiple forces and powers that be. The RBI Governor, thus, found himself in the midst of an unseemly tussle. Add to it the rejigging of the RBI board with the appointment of Swaminathan Gurumurthy and Satish Marathe as part-time directors of the central bank. That was followed by the appointment of retired bureaucrat Revathy Iyer and Sachin Chaturvedi, head of a Delhi-based think tank, also on the board.

All these, without doubt, may have affected the Governor. Evidence of this discord came up in October when the central bank issued a rare public objection to a government-led panel’s recommendation for payments systems to be overseen by a regulator, away from the RBI’s control. It did not help that the RBI Governor came from the same school as his predecessor Raghuram Rajan, who believed that the principal job of the central bank is to contain inflation.

This month, RBI’s Monetary Policy Committee (MPC) kept its interest rates unchanged, retaining its ‘calibrated tightening’ stance. While the government welcomed the assessment, it did not fail to add that the policy stance ‘probably required calibration’.

The final straw seems to have come last week when an RBI sub-committee did not discuss easing lending curbs facing 11 state-run banks, despite government’s demand. The rest is history. The government has appointed a former economic affairs secretary, Shaktikanta Das, as the new RBI governor. In any case, the optics of a Governor’s resignation are not right for any country.