Shaktikanta Das was appointed as RBI governor in challenging times. It came on the backdrop of the Untimely resignation of Urjit Patel and denied a 2-year Extention to Raghuram Rajan. The credibility of RBI was under question even when Urjit Patel, as many called him the man from Reliance. The last 5-6 years for RBI were not so good. As of December 12, 2019, he will complete one year at RBI as Governor. I am analyzing the whole issue. And while doing so, I thought that talking about the legacy of the former two governors is also essential. I am going to start with D. Subbarao.
D Subbarao. Appointed the 22nd Governor of Reserve Bank of India (RBI) from September 5, 2008, with an extension in 2011 till September 4, 2013. Lehman Brothers collapsed on September 15. No time to settle. No one was expecting it. Yes. There were signs, but no one gets it about its size.
There was no time. He made some critical decisions. But also, there was A TEAM working and cooperating with him from PMO. (The Best thing about Manmohan Singh was that he gave independence to his team members.) Due to those remedies, the growth is returning to track. In his last speech as RBI Govr, he mentioned that we central bankers of Developing countries have much ammunition to tackle the crisis and are easy to understand. His strategy applied good for growth but went wrong for inflation.
Then came The hero. the handsome RBI Governor. Raghuram Rajan. On the very first day, he decided to remove the limits of Bank branches. There we saw some significant steps. Like by making one committee under Urjit Patel, he agreed on the future of Indian central banking, made another committee Under Nachiket, and decided on how to give a bank account to unbanked people. With setting up another under Bimal Jalan, agreed to keep banking license ‘On TAP.’ He started the process of cleaning the balance sheet of banks. The first time we saw them, Some promoters looked scared of bankers. Though he failed to complete it, he started some vital changes. His speeches are fascinating to read. But how he kept expressing his views became a hurdle for the ruling party. That became visible in the decision about Demonetisation. India lost its first Governor with knowledge of global economics on the issue of him not being a complete Indian.
Urjit Patel, Successor of Raghuram Rajan not even born in India ( Nairobi, Kenya). He kept the pace of cleaning the Balance sheet of banks. In his term only, RBI received some extra powers to be on board in the issue of Cleaning of NPA mess. All shocking circulars of the February 12 circular came during his time only. He was the one who faced the new regime of MPC. Though people were scared he maybe not be suitable to lead RBI, what he did is beyond doubt essential, and that is to fight for the independence of RBI. He resigns when he finds it challenging to handle the hostility of the RBI Board of directors, Including S Gurumurthy. Through Viral Acharya’s mouth, he talked about the independence of RBi and its importance. ( Viral Acharya needs one respected mention about his idea of privatization of part of State-run banking in India)
There came current RBi governor, Shaktikanta Das, The first governor to have his social media account. So what Bloomberg Quint mentioned about him is perfect.
Parachuted into the RBI after his predecessor Patel quit amid tensions with the government, Das had a balance to strike. He needed to repair relations with New Delhi, while ensuring that he isn’t seen as subverting the interests of the central bank. That, while juggling a weak economy and a financial sector with many-a-crack emerging.
One reason why Urjit Patel, Resign even before completing his 3-year terms is the capital on the Balance Sheet of RBI.
In less than one month in office, he set up one committee for handling the issue of capital of RBI, which advised to keep 5.55-6% capital. Shakti Kanta das went with the lower side of the band, Making Rs 52,637 available for the government over and above the yearly dividend.
Another issue of the fight between Urjit Patel and Govt was PCA. Prompt Corrective Action. There were 12 banks under this, making a restriction on their lending. It leads to lower borrowing availability in the economy, so the government tries to loosen restrictions. Urjit Patel makes a stand that he did what he did for the betterment of the balance sheet of Public sector banks. Shaktikanta das choose to ease some restrictions with the caveat that the government has assured adequate capital. Even on the February 12 circular, why many industrialists fought with RBI, RBI under Shaktikanta Das chose the middle path.
Though I am not agreed with much of what he did, the fact is…
RBI is a 100% government-owned company having some extra power over banking and regulations of debt markets and public debt. So it needs to maintain good communication with its Government and people in the north block.
The things in front of him are weakening the economy. So now I am interested to see how he cooperates with Nirmala Sivaraman.
