: The Reserve Bank of India (RBI) was under “intense pressure” to open up “liquidity and credit taps” to prop up the economy, and its crackdown against non-performing borrowers was being “stayed”, the former deputy governor of India’s central bank Viral V Acharya has said in his book, giving new details on why he unexpectedly decided to quit his job while six months were still left in his tenure.

In his book, “Quest for Restoring Financial Stability in India”, published by Sage Publications, Acharya argues that several policies “regressed” the economic environment while he was deputy governor between early January 2017 and mid-July 2019.

“Capital was injected in weaker rather than healthier public sector banks; not much market capital was raised by any of these banks as originally envisaged; capital standards and PCA [prompt corrective action] framework were diluted; forbearance in loss recognition crept in again for some asset classes; and the resolution of several non-performing borrowers under the Insolvency and Bankruptcy Code (IBC) was stayed,” according to the book.

At another point in the book, Acharya writes that RBI resisted and reasoned against such moves, and in the end, after some compromises, its earlier steps to restore financial stability prevailed. “There was no doubt a marked attrition in outcomes relative to our original objectives, but a complete degeneration into excessive monetary and credit stimulus that had caused the Indian financial sector to lose its stability in just the previous decade had been rendered difficult,” he wrote.

This friction, he indicates in the book, led to the departure of then RBI governor Urjit Patel. “Nevertheless, attempts to alter the governance structure of the RBI to institutionalise such outcomes in future would have meant crossing the Rubicon and had to be foiled. As a result, the RBI lost its governor on the altar of financial stability,” Acharya wrote. The reference, while not naming Patel, ostensibly was to the resignation of Patel in December 2018.

The finance ministry did not respond to an email query on this matter.

His thoughts when he was coming to Mumbai in January 2017, he writes, were that “the Indian banking sector was sitting on one of the highest non-performing loans to assets ratio among the G20 countries and even among the group of emerging markets — a marked departure since its standing in 2009”.

He writes that the banking sector stress in India tends to play out somewhat silently, just as in China where state-owned banks hold the majority of deposits and loans. “This is because government ownership rules out that depositors en masse ‘run’ on public sector banks even if bank borrowers default en masse, which some consider a positive backdrop for financial stability, unless and until the sovereign balance sheet solvency is itself considered to be on the brink.”