Uphill task ahead of new RBI Governor Shaktikanta Das

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Published: December 12, 2018 5:51:36 AM

If the record of D Subbarao is any indication, a former finance ministry bureaucrat at the helm of the RBI doesn't necessarily mean a convergence of views between the government and the regulator

Das joins at a time when the finance ministry’s invocation of the never-used Section 7 of the RBI Act.

The appointment of Shaktikanta Das — former economic affairs secretary and a current member of the 15th Finance Commission — as the 25th governor of the Reserve Bank of India (RBI) signals the government’s efforts to broker peace between the two sparring factions in the RBI board, said analysts.
Some, however, viewed the elevation of Das — the government’s most trusted lieutenant during the unprecedented demonetisation exercise — as suggestive of a departure from the Raghuram Rajan-Patel era policies of the RBI and the government’s stealth incursion into the central bank’s autonomous policy space.

However, if the record of D Subbarao is any indication, a former finance ministry bureaucrat at the helm of the RBI doesn’t necessarily mean a convergence of views between the government and the regulator.
Given that Patel’s resignation was the culmination of a long-simmering tussle between the finance ministry and the central bank over a string of contentious issues that were seen as undermining the banking regulator’s autonomy, Das has the unenviable task of resisting the government’s pressure to restore and preserve the RBI’s autonomy as well as institutional integrity.

He also has to reassure nervous markets, which reacted negatively in early trade on Tuesday to Patel’s departure, of the central bank’s commitment to financial stability.

Das joins at a time when the finance ministry’s invocation of the never-used Section 7 of the RBI Act to force the central bank to undertake consultations and its demand for tweaking the banking regulator’s governance structure as well as the economic capital framework that determines its surplus transfer to ensure a greater flow of dividend to a poll-bound government have strained its relations with the RBI management. The Act leaves the scope for the government to issue binding directives to the central bank to give in to its diktat, if necessary.

Even on key issues like liquidity crunch being faced by non-bank lenders, capital requirement for banks, corrective regime framework for weak banks and the RBI’s February 12 circular for time-bound resolution of bad assets (that saw stressed power producers up in arms against the regulator), the government and the RBI have sparred.

As such, the more vocal government nominees on the central board in recent months on vexed issues have only added to the RBI management’s unease.

It’s not clear if the meeting of the RBI’s central board will be held on December 14, as expected earlier unless Das calls one on that day. It’s because the governor usually convenes and presides over the meeting.

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