Congress leader Rahul Gandhi held the Modi government responsible for the resignation of Urjit Patel, former Reserve Bank of India (RBI) governor, saying efforts to clean the banking system in the country cost him his job.
Gandhi also said the RBI governor resigned in just over two years as Prime Minister Narendra Modi didn't want him to go after wilful defaulters.
"Efforts to clean the banking system cost him his job. Why? PM didn't want him to go after wilful defaulters," Gandhi tweeted.
Gandhi was referring to Patel's recently launched book, 'Overdraft: Saving The Indian Saver,' in which he says the RBI's decision to dilute the bankruptcy law caused rift between the central bank and the Modi government.
The rift centred around a February 2018 circular by the RBI that forced banks to 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 in his book said the government seemed to lose enthusiasm for the legislation mid-way and appeared to go easy. Patel said till then the Finance Minister (late BJP leader Arun Jaitley) 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," Patel wrote in his book.
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.
Under Patel, the decision to relax the PCA framework for some weak banks was referred to the board for Financial Supervision. The RBI was not comfortable in relaxing the PCA guidelines without any capital infusion from the government.
Patel, who left in December 2018, writes that the PCA norms were relaxed to 'graduate' five loss-making banks out of the PCA in early 2019. "Recapitalisation of these PCA banks helped them meet the criterion on net NPAs. Hardly anyone disagreed that this was to facilitate higher credit growth," writes Patel who was handpicked by the BJP-led NDA government after former RBI Governor Raghuram Rajan completed his three-year tenure.
Later, the Supreme Court struck down RBI's February circular. The decision "made the insolvency regime vulnerable, possibly brittle", Patel wrote.
RBI Governor Urjit Patel resigned on December 10, 2018, from the governor's post, citing "personal reasons," but
his resignation followed a spat between the RBI and the Finance Ministry over autonomy and governance issues.
After his resignation, new Governor Shaktikanta Das amended the rules, giving 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.