Given the position that the new Governor is an insider who rose from a deputy governor to the top post and that he is too reticent to share his ideas with all and sundry that includes media meant that the ruling dispensation has zeroed in on the right person as it is loathe to get the governor of the central bank being a loose cannon or an outspoken thought leader.

On hindsight, it can be safely surmised that the bazooka and broadsides fired by the outgoing Governor in various public lectures on issues that went beyond his remit as the chief of the central bank but encompassed the broader macro economy and in the national interests had sufficiently hurt the amour propre of the establishment to its eternal chagrin! Once bitten, it has naturally become chary to opt for a successor who is not given to let his hidden and open thoughts known to even his closest associates, leave aside the larger audience away from the portals of the apex bank!

As the new governor is about to take charge from Rajan on September 4 to continue the prudent path paved by the latter during his three eventful years in RBI, the contributions Rajan had made and the consolidation expected of his successor need to be put in proper perspective. Rajan deftly managed the adverse fallout of the taper tantrum (the premature withdrawal of the ultra low interest policy of the US Federal Reserve in the summer of 2013) when Indian rupee plunged to its nadir with a flight of foreign capital to compound the economy’s woes, was widely hailed as he restored the balance of payments situation to normality within a few weeks.

From then on, Rajan crusaded an anti-inflation strategy with missionary zeal even as the disheartened trade and industry with maverick member of the ruling party such as Dr. Subramanian Swamy rather viciously vilifying him. A saturnine and unfazed Rajan seldom lowered his guard, relentlessly trying to bring the wholesale price index inflation to the negative territory and the consumer price index (CPI), the widely used barometer for price rise impact, to less than six per cent from the double digit levels. Besides, he also signed a memorandum of understanding with the Finance Ministry for inflation-targeting monetary policy in February 2015.

The concept of inflation target—a nominal anchor in central bank lingo was first favored by the high-powered Committee on Financial Sector Reform headed by Raghuram Rajan in 2008. With inflation widely construed as the cruelest form of taxation on the poorest, an institutional framework to keep inflation volatility under checks what the aam admi ardently wishes. In fact, no sooner he was appointed to the apex bank as its head, he announced in a statement the constitution of a committee under Deputy Governor Urjit Patel to suggest ways to bolster the monetary policy framework. Now that Rajan leaves, the six members Monetary Policy Committee (MPC) to be headed by his successor Urjit Patel is in safe pair of hands to keep above succumbing to pressure for rate cuts and monetary easing, the mantra of growth-enthusiasts at any cost!

The most prominent impact of Rajan’s epochal tenure in the apex bank was the steps he had set in motion to clean up the bad bank loan portfolio that may endanger the larger financial stability of the economy. He went wholly against the systemic weakness of balance sheet troubles of many a public sector bank, instituting by now the familiar Asset Quality Review (AQR). This way Rajan shifted the responsibility on the banks to classify loans that were detected during AQR as bad loans and duly make provisions to reflect the real value of the loan even as it paints their end-quarter balance sheets with warts and all. This is preferable to ‘extend and pretend’ habit the public sector banks were inured to all along these years that gave a false synoptic picture of things being honky-dory. The NPAs identified by RBI on account of AQR exercise as on end-March 2015 was Rs 1,21,686 crore. In a written reply in Rajya Sabha on August 2, the Minister of State for Finance Mr. Santosh Kumar Gangwar said the gross NPAs of PSBs as on March 31,2016 stood at Rs 4,76,816 crore. This reflects the sinister hold of the NPAs and the need for ‘surgical action’ to get rid of them.

Though the concept of the NPAs’ had been dogging the banking sector for more than two decades, it was given to Rajan to recognize the canker of the NPAs vigorously to make due prudential provisioning and precautionary actions lest any laxity should jeopardize the financial stability. Rajan was also largely instrumental in undertaking a series of steps to minimize NPA burden that include among others formation of Joint Lenders Forum (JLF) for revitalizing stressed assets in the system, flexible structuring for long-term project loans to infrastructure and core industries, strategic debt restructuring scheme and the Scheme for Sustainable Structuring of Stressed Assets (S4A).

Considering the fact that in sectors such as infrastructure (power and roads), steel and textile, the incidence of NPAs is both humongous and dangerous, Mr. Patel has his priorities cut out in faithfully following and consolidating the measures Rajan undertook to clean up the banking system. A lot is expected of the new Governor and how he makes do with striking the right distance from the Ministry of Finance while ensuring the role of banking industry’s impartial regulator, will decide the pace, pattern and progress of the country’s financial system over the long haul. (IPA Service)