Will Do Everything Possible To Uphold RBI’s Autonomy, Says Shaktikanta Das

A New RBI Governor Takes Charge

Each governor brings along his touch to the Reserve Bank of India.

Bimal Jalan was seen as quiet and pragmatic. YV Reddy had a way with words, leaving you wondering about the real meaning of what he said. D Subbarao was precise and concise. Raghuram Rajan took a professorial approach to many of the questions posed to him. Urjit Patel’s answers were prepared and to-the-point.

In comes Shaktikanta Das.

After taking over on Wednesday morning, without the customary picture of the handover ceremony, Das quickly called for a press conference. The meet, perhaps, intended to send out a message that the RBI is open for discussion, deliberation and debate. On the table are a number of contentious issues ranging from governance of the Reserve Bank, the amount of capital the central bank holds and toughened banking regulations. The stand-off over these issues prompted an abrupt resignation from predecessor Urjit Patel. It is now up to Das to decide on whether to yield to the government’s requests on some of these issues or stick to the position articulated by the RBI under Patel.

Das, used to all the flashbulbs and shout outs from photographers to pose, seemed ready to take all questions but gave away little in his answers.

A former bureaucrat, who is seen to be close to the government, Das started by saying that he will uphold the credibility and the autonomy of the Reserve Bank of India. When pressed on whether the RBI’s independence has been compromised in the recent stand-off with the government, Das said that “every institution has its autonomy but also has to be accountable”.

Some quarters, particularly within the government, have argued that the RBI is not accountable enough. That is one reason why the government is keen on a new governance structure for the regulator. This new structure, if cleared, may lead a greater role for the central board. The matter will be discussed at the next board meeting on Dec.14. The meeting and discussions on items on the agenda will take place as planned, said Das.

Das also stressed on the need for consultations with stakeholders, saying that these add value and depth to policy making. The comment, perhaps, aimed at sending a message that complaints about the RBI becoming too closed to consultations under former Governor Patel will be addressed.

There is a need to have stakeholder consultation with "everybody", Das said. This includes the government. The government is not just a stakeholder but also runs the economy and the country, he added.

Consultations with bankers are also on the agenda.

Das will meet with public-sector bank chiefs on Thursday. Undoubtedly the conversation will turn to the grouse that bankers have against the RBI’s Feb.12 circular and the toughened Prompt Corrective Action framework.

Will Das make changes to these rules? He declined to comment.

But analysts expect him to. “He (Das) is likely to be more communicative and consultative in his approach, which is a positive. On policy, it does appear that he is likely to relax regulatory norms for banks (make them more counter-cyclical) and he will be more proactive in injecting liquidity,” said Sonal Varma, chief India economist at Nomura, in a note soon after the press conference.

Das also stressed that growth is part of the RBI’s mandate. Growth is in the preamble of the RBI, Das added right after saying that inflation targeting in an important part of the central bank’s tasks.

With inflation low and growth slipping, analysts will undoubtedly parse the new governor’s words to see whether a window for lower interest rates may open soon.

Some analysts are already predicting rate cuts in 2019. In light of the fall in inflation to 17-month lows, Rajeev Malik of River Valley Asset Management now sees a change in stance from the Monetary Policy Committee and predicts two rate cuts next year.

Government officials, in recent weeks, have also suggested that constrained credit flow is hurting the economy. The RBI has pushed back saying that at 15 percent, banking credit growth is strong. The government has also sought easier liquidity conditions to deal with the strains being faced by non-bank lenders. Everything within the ambit of the RBI will be looked at, Das said, suggesting that he will review matters with a fresh eye.

As Das prepared to leave the conference room on the 15th floor of the Reserve Bank of India building, a reporter shouted out a last and prickly question. Is Deputy Governor Viral Acharya still at the RBI?

Yes, I had tea with him a while back, Das said unfazed. Answering the question but making sure he gives nothing away.

While assuring that the autonomy of the RBI will be upheld and maintained at all times, Das indicated the willingness to take inputs from the government.

Das said that he will undertake consultations with all stakeholders wherever necessary.

Das, a career bureaucrat, said that he will “uphold the autonomy, the integrity and credibility” of the RBI, even as he stressed that institutions must be accountable.

India’s inflation outlook seems benign, Das said today. However, there is a need to be watchful.

In the last bi-monthly monetary policy under former Governor Urjit Patel, the MPC announced a sharp cut in inflation projections due to a fall in oil prices and stabilisation of the currency over the previous two months, suggesting a pause in interest rates for the foreseeable future.

The new RBI governor said that he will focus on the banking sector's woes immediately and will begin by meeting chiefs of Mumbai-based public sector banks on Dec. 13, i.e., tomorrow.

There is no fixed agenda on Prompt Corrective Action, said Das. This has been a point of friction between the central government and the RBI over the last few months. General consultation on the issue is underway, he said.

On NBFC Crisis

Responding to BloombergQuint’s question on the NBFC credit crisis, Das said that all challenges that fall within the domain of the Reserve Bank of India will be addressed.

Several measures have been taken by the government and the Reserve Bank of India to address the liquidity crunch in India’s non banking financial companies sector, Das said, noting that much more still has to be done.

The comments come against the backdrop of a liquidity and trust crisis being faced by NBFCs, brought on due to defaults by once AAA-rated Infrastructure Leasing & Financial Services (IL&FS). The defaults led to concerns about roll-overs of existing liabilities of NBFCs and the possibility of more defaults.

The Reserve Bank of India has pumped in more than Rs 1.36 trillion in OMO operations this year, of which Rs 1 trillion was doled out in a little over the last three months itself, deputy governor Viral Acharya had said at the last bi-monthly MPC press meet.

Das said he will now interact with stakeholders on liquidity and take internal feedback.

Newly appointed central bank governor, Shaktikanta Das pledged that he will do everything possible to uphold the credibility and the autonomy of the RBI.

This comes after months of tension between the bank and the central government and worries that the government was encroaching on the central bank’s turf.

Das does not plan to make any major announcements at this point, he said.

India’s new central bank governor has a list of challenges to face as he takes office: from fixing a banking crisis to convincing investors of the institution’s autonomy.

Sovereign bonds rallied on optimism he may shift the monetary policy stance to a less hawkish one. The rupee, Asia’s worst-performer among major currencies this year, dropped as much as 0.4 percent against the dollar, amid concern over the central bank’s independence and recent state election results.

“Mr. Das will be initially considered more as a Finance Ministry insider, and only time will tell whether he preserves the RBI’s independence,” said Sonal Varma, an economist at Nomura Plc in Singapore. “Our analysis of his views suggests that he has a neutral-to-dovish bent on monetary policy. We expect regulatory policies under his governorship to be more sympathetic to the government’s arguments.”

The resignation of Urjit Patel as Reserve Bank of India governor highlights the risks of increased government influence on the central bank, which in turn could undermine the efforts to address the bad loans problem, said Fitch Ratings.

The RBI's efforts to address bad loan problems have the potential to improve banking-sector health over the long term and its commitment to inflation targeting has supported a more stable macroeconomic environment in recent years.

"Increased government influence on the central bank could undermine this progress," Fitch said.

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Shaktikanta Das will address the media for the first time as the Reserve Bank of India governor at 4 p.m. today.

Previous RBI Governor Urjit Patel resigned abruptly on Dec. 10, nine months before his term was scheduled to come to an end in September 2019. The resignation came amid worries that the government was encroaching on the central bank’s turf.

Das, a career bureaucrat, is seen as someone who can ease tensions with the state, and his appointment has prompted mixed reactions from the markets.