Reserve Bank of India Governor Raghuram Rajan, who has faced criticism from members of Prime Minister Narendra Modi's ruling party for not lowering interest rates enough, said on Saturday he would step down when his term ends on September 4.

In an unexpected move Rajan, a former chief economist at the IMF who has been popular with foreign investors for his efforts to tackle inflation and clean up massive bad loans at state-run banks, said he planned to return to academia.

"I am an academic and I have always made it clear that my ultimate home is in the realm of ideas," Rajan said in a letter to staff released by the central bank.

Rajan, who is on leave from the University of Chicago, joined the RBI in September 2013, when the country was facing its worst currency crisis since the 1990s.

Since then he has been credited with helping to stabilise the currency, restore foreign investors' faith in Indian policymaking and lowering inflation and the current account deficit sharply.

While he has won widespread accolades from investors, he has been facing stiff opposition back home from sections of Modi's Bharatiya Janata Party (BJP).

Neither the prime minister's office nor the finance ministry spokesman had any immediate comment on Rajan's decision.

In the letter, Rajan expressed pride at the RBI's accomplishments during his tenure, though he said more needed to be done, including the creation of a monetary policy committee to set interest rates and the clean-up of the banking sector.

"While I was open to seeing these developments through, on due reflection, and after consultation with the government, I want to share with you that I will be returning to academia when my term as Governor ends on September 4, 2016. I will, of course, always be available to serve my country when needed."

Government officials had previously told Reuters that Modi's administration would re-appoint the governor, should he wish to stay on. Rajan has previously declined to say whether he would accept such a re-appointment.

Analysts said markets would likely react negatively on Monday, at a time when global factors such as Britain's referendum on European Union membership are already weighing.

Current RBI deputy governor Urjit Patel, State Bank of India chairman Arundhati Bhattacharya, the finance ministry's chief economic adviser Arvind Subramanian and the government's economic affairs secretary Shaktikanta Das have previously been named by analysts as potential replacements should Rajan depart.-Reuters