3 year extension to RBI Governor

RBI Governor gets three year extension

Shri Shaktikanta Das’ term as RBI Governor is extended by another three years. He will be the first Governor to get an extension after Shri Subba Rao (2008-13). Shri Raghuram Rajan had a three year term (2013-16), while Shri Urjit Patel quit office a little over two years after assuming charge in 2016. It is also worth noting that Shri Das may be among the few, who got an extension of three years. (Shri Y.V. Reddy and Shri Subba Rao had a tenure of five years).

Not surprising, if one considers the way RBI ensured 'financial calmness' in the country, which continue to suffer and struggle resulting from  the global epidemic COVID, resultant lockdowns and paralysis in the economy, threatening the livelihood of billions of Indians. By not touching the panic button during COVID, creating a positive atmosphere all around with rate cut and liquidity initiatives, Shri Das enabled the businesses and individuals to get over financial  stress and he also gave them the confidence to return to normalcy, once the pandemic eases. Under his leadership, RBI ensured that persistent lock downs and one or two 'bubbles' getting burst in the financial system did not result in chaos and undesired chain reactions everywhere. Finally by playing a support role to the government (which made sincere efforts), even at the cost of RBI  being branded as another fiscal arm of the government, the regulator made the lives of industries, services, agriculturists and individuals comfortable with no undue repayment pressures from the lenders.  The Governor also showed that the economy can sustain even during torrid times, if the monetary and fiscal players complement each other, without losing sight of their role on deficit and regulation.

Unconventional and some times historic decisions, setting precedent for future, were made during the first three year period of Shri Das, as RBI Governor. Some of them are

ü  Monetary Policy: Repo rate was reduced by 250 basis ponts in less than fifteen months. Ever since May 2020, Repo, paused continuously in all MPC meetings since then, remain at 4.0%, (inspite of inflation at higher levels in the last one year)

ü  Regulatory & Support initiatives : Liquidity pumped in the financial system through reduction of CRR by 1%(Rs.1.37 lac cr.), increase in borrowing limit of banks through MSF from 2 to 3%(again money made available was Rs.1.37 lac cr.), making available  loans at Repo rate to banks, financial institutions, SFBs, NBFCs through targeted/on tap’ long term repo operations, purchase of govt securities thro operation twists, G-SAPs, absorbing forex inflows through organised purchase of dollars in the market were some such initiatives.

ü  Support role to the government to raise fiscal borrowings at historically lower costs through repeated g-sec purchases from the market and by making money available in the hands of investors.

ü  Transfer the entire surplus available in the books of RBI to the government in the last three years.

ü  Bubbles in the financial system were never allowed to explode to endanger systemic risks.IL&FS was superceded with the appointment of a new board by the government in Oct 2018, just prior to Shri Das assuming charge as RBI Governor in Dec 2018. The unconventional restructuring/resolutions to tackle sick or stressed financial institutions continued in his first term. Investment of more than 50% equity by LIC to rescue IDBI Bank, making it a private sector bank, investment by a group of banks led by SBI and take over of board and management in Yes Bank, permitting DBS Bank to take over ailing Lakshmi Vilas Bank, appointing administrator to file a resolution petition in NCLT in respect of DHFL approving CFSL to become a SFB with a caveat to take over PMC, a large co-operative bank and superceding the board of Srei, an NBFC are all events of the recent past.

The above decisions may have their impact in the near future depending on how the resolution plans are going to work out.  Success of moratorium and restructuring measures to rescue borrowers stressed on account of COVID impact depends on several factors like revival of economy, containing new COVID cases, commodity supply side shocks etc.  The future may witness unprecedented stress in loan assets especially on retail & MSME. The interest rate, suppressed for long, may start its upward journey  rapidly. Again pumping in liquidity, when the system was flush with funds, may be analysed and wisdom arising out  of experience may be presented as views of experts in hindsight. But when all these happen, the life threatening, fear striking, economy paralysing strong COVID would be behind us. And as a nation, we will have the strength to handle that crisis at that time. 

Well done Shri Shaktikanta Das. You deserve the extension. India is benefitted.

Regards

V. Viswanathan

30th October 2021

 

 

 

 

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