The Finance Ministry on Saturday, announced Urjit Patel as the next governor of the Reserve Bank of India. Patel is currently the deputy governor of the RBI. He was first appointed in January 2013 for a term of three years and re-appointed in January 2016 for another three-year term.
Prior to joining the RBI, Patel has worked in the private and public sector. His private sector stints include an assignment as President (Business Development), Reliance Industries Limited. For almost a decade, between 1997 to 2006, he worked at Infrastructure Development Finance Company Limited (IDFC) as executive director and member of the management committee. During that time, HDFC Chairman Deepak Parekh, then also Chairman, IDFC, worked closely with Urjit Patel.
In an exclusive interview to BloombergQuint’s Menaka Doshi, Deepak Parekh shares his insights on Urjit Patel’s personality, policies and the challenges facing him.
Parekh says Patel is the right man for the job as he is an RBI insider, has worked with the finance ministry and has private sector experience too
What do you make of the appointment of Urjit Patel as the new governor of the Reserve Bank of India?
I think it’s an excellent choice. First of all, he is young and the recent trend has been to appoint governors in their early 50s, which I think is a very good thing. He is an insider. He has been an insider now for about three-and-a-half years. He was an insider in the Finance Ministry. He has worked in the system.
He worked with me in IDFC for nine years, when India’s infrastructure sector was in its early days. He was involved in policy-making, lending to infrastructure companies, trying to see the issues in lending and why infrastructure companies were not doing well because of policy issues.
So you know, he’s worked in government, in IMF (International Monetary Fund), in private sector…and continuity in the biggest issue. I think Reserve Bank of India needs continuity, needs stability and confidence amongst international governments. We need someone who is a part of the system.
It’s a continuation of Rajan’s policy. He is not going to slow down on recovery of NPAs (non-performing assets). He was the author of Monetary Policy Committee. He was the author on inflation targeting. He is extremely well-qualified; if you look at his qualifications: A PhD from Yale is no joke. He has worked in the private sector also.
So, he has seen the world at the young age of early 50s – 52-53. I think the government has zeroed in on a good choice, on an excellent choice. We need stability in India today. We don’t need someone new to come in and disrupt things and change things because you know it is always difficult to do that in a large organisation.
You said you had worked with Mr Patel personally for about eight to nine years at IDFC. Can you tell us a bit about his personal characteristics; something that would give us insight on how he will manage the many big pressures that any RBI governor has to?
Well, he is a quiet person. He is, you know some people say he is a loner, but he is conservative. He is a man of few words. He will not be giving many interviews because I think he is a little shy. He is single. So, he spends most of his evenings reading economic books, journals, magazines and writing papers. So he is totally committed and I found him extremely, extremely youthful in my early IDFC days. As I said it was nine years. Earlier he was the chief economist, then we put him on the board of IDFC.
So he was liaising with every government ministry on infrastructure because it was in late-90s when it started – 1997 or so if I recollect that infrastructure financing began and the government set up IDFC and he was in the finance ministry then. He came over from the finance ministry. We took him and we hired him from the finance ministry.
If you were to articulate what you think some of the top challenges Mr. Patel will have to deal with, what would they be? Of course, he was the author of the key inflation report that the RBI and the government have both adopted and followed so far. We understand that inflation targeting, or ensuring that inflation is within the 4 percent control band, plus or minus two (percent), will be his top priority. But besides that?
As the deputy governor, he was looking at 25 percent, as one would imagine, of the RBI’s activity. As the governor, he has to oversee, supervise and handle 100 percent of the Reserve Bank’s operations. Like Department of Banking Operations and Development (DBOD) – supervision, regulatory issues etc.
All these were not directly under him. As one of four deputy governors, he was always involved at the periphery. Now he has to oversee all of that. It is a much, much bigger job than a deputy governor’s job.
I think he is capable of handling it very suitably. He is the right choice at this time when we want continuity and stability.
One of the other challenges facing the Reserve Bank of India is the issue of bad loans. There have been several schemes that have been created to deal with this problem and they have not necessarily succeeded. Even the latest one, S4A, now seems to be under review, so that it can be made more suitable to tackle the problem. What do you think Mr. Patel should be doing as his first steps to be able to bring the NPA problem under some degree of control, or give confidence to the country that at least it’s on the decline?
You know he is quite innovative. He has that streak of being a businessman, or a streak of an entrepreneur. He is innovative, and apart from continuing the policies of the previous administration or the previous governor, he will come out over time with his own ideas on how to recover loans.
I don’t think being an economist, handling monetary affairs and monetary policy, he is not going to pay attention on the NPAs, or recapitalisation of banks, or bank mergers or new banking licences. The new job is a huge one compared to what each deputy governor does in his own day-to-day routine.
It is a challenge but I think he is capable of doing this admirably. He is quiet. He is conservative. He is cautious and that’s what an RBI governor should be.
Given where inflation is right now, do you expect that the next RBI monetary policy announcement, which will have two new things about it: 1) the Monetary Policy Committee’s (MPC) involvement and 2) a new RBI governor at the helm; will be towards a rate cut or a status quo?
See now, as you said it will be the first MPC, so it doesn’t depend on the governor alone, [it will also depend on] what the views of the other people are. So it’s not a one-person decision anymore. It’s the wisdom of six people who will decide.
So he will have one-sixth of a say, but he won’t have a 100 percent of the say. So how can we … he may be for an increase or for a reduction – we don’t know. But it’s not going to be a governor’s prerogative anymore.
Sure, but what would you expect the RBI to do?
I don’t think he is going to rock the boat suddenly. Inflation numbers, according to me, had come down last month but have crept up a bit—the CPI Inflation. So, I think he would let status quo remain for some time.
So you don’t expect any further rate cuts at least in this calendar year of 2016?
Okay. There is some consensus amongst those who look at the bond markets closely, that there may be an initial negative reaction in the bond markets given that Mr. Patel’s hawkish stand. What would you expect would be the market reaction, whether it’s equities or bonds or even the currency market reaction to Urjit Patel’s appointment as governor?
I don’t know why press and TV says that the stock market will rally tomorrow and the bond market will decline. I don’t believe it at all. I don’t buy this.
The stock market doesn’t depend on one individual or the governor. Similarly, with the bond market. He has handled the foreign exchange situation exceptionally well. Apart from our reserves being at all-time high, the RBI has taken care of the repayment next month of the massive $34 billion FCNR deposits that we had mobilised.
So, I don’t think that it’s going to rattle the exchange or the currency significantly or the bond market or the capital market.
If there was the perception that the Government of India had sort of kicked itself in the foot by not giving Raghuram Rajan an extension, do you think that perception has now been balanced out by the fact that they have appointed from within the RBI, a man who you said has also had private sector experience and thereby restored at least the perception that the government does care about the independence of the institution?
No, I think in such a senior position—whether it’s the prime minister of the country or the finance minister of the country—they must feel comfortable dealing with a person. They must know the person earlier. They can’t pick a person who they have never worked with, who has never worked in the system, bring him from some part of the world and put him there.
It rarely happens even in multinationals. It rarely happens even in the Indian corporate sector. Where it has happened, there are more cases of disruption or instability rather than a smooth transition. By appointing Urjit, the transition is going to be smoothest.
And that according to you is the most important element of this transition.
Yes, most important.