That Das would be the first governor in almost seven decades to serve the central bank for six long years when he completes the second term is recognition from the government that he has navigated the ship rather well through stormy seas.
A market used to the central bank being led by high profile economists from Ivy League universities in recent years was doubtful when civil servant Das, with a major in history, succeeded Yale alumnus Urjit Patel.
When the Monetary Policy Committee cut interest rates and shifted the monetary policy stance to neutral in the first meeting headed by him in February 2019, the commentariat was quick to declare the death of the independence of the institution. How does the market view Das’ term three years hence?
“Under Governor Das, the central bank has done the heavy lifting to support the economy through the Covid crisis, with fiscal policy playing a supportive role,” said Rahul Bajoria, an economist at Barclays.
Das changed course long before Covid. His February 2019 decision to cut rates by 25 basis points and change the stance to neutral was shifting the central bank’s agenda to economic revival rather than playing by rulebook on inflation targeting. A basis point is 0.01 percentage point.
When Covid struck a year later, the process of loosening accelerated with sharper rate cuts and unprecedented amounts of liquidity. He’s wearing the hat of a risk-taker by persisting with loose policy despite inflation remaining above target – unlike his risk manager predecessor.
The RBI ended up with more than 100 targeted measures in the 18 months, including a moratorium and a loan restructuring programme, the impact of which would be known in coming years.
Being the head of a full-service central bank, there were other challenges too. The blow-ups of Yes Bank, Lakshmi Vilas Bank, Dewan Housing Finance and the Punjab and Maharashtra Co-operative Bank.
By sticking to the Jalan panel recommendations on dividends to the government and refusing to yield on a bailout package for NBFCs, Das showed he’s no pushover.
While a lot of these would appear to be the mightiest challenges a central banker could face, the coming years would define his legacy as he prepares to take away the punch bowl the market is intoxicated with and lays a fresh foundation for regulation and development of the financial markets.
Would he risk falling behind the curve by staying too low for too long? The government appears to be in tango with him as its fiscal deficit for the first half of the year is running at a seven-year low. That should provide a buffer to roll back as a potential rise in yields could be orderly – and politically manageable.
As a student of history, he would know that interest rate decisions won’t occupy much space in RBI’s history. Rather, his decisions on the development of financial markets and the banking industry would shape his legacy.
Bank Licences: An internal working group recommendation that industrial houses be given bank licences has already kicked up a storm. What if he presides over it and risks a few Global Trust Banks or Yes Banks? There are already big NBFCs owned by industrial houses which have to make the transition to banks to reduce systemic risks. The difficult question for him is if some of them are allowed to own banks, why not the rest?
NUEs: If at all there’s one revolution in banking that the nation has to celebrate like the Amul Cooperative movement, it is on the payments side. The National Payments Corporation of India, for which the seeds were sown in the YV Reddy era, has taken payments to every nook and cranny of the country. To let NUEs operate without liberating NPCI from the ‘not for profit’ clutches would be equivalent to letting BSNL compete with Bharti Airtel and Reliance.
Neo Banks: The country is in the grip of start-up mania. With fintechs declaring that they are the panacea for economic ills, can he withstand the pressure to let them have a free run? Will he open the doors for neo banks and let industries own this pie without granting them a universal bank licence?
Crypto: He doesn’t believe that crypto is a currency and letting it remain in the market could cause more harm than good. How does he counter the lobby group? He has convinced the government on many occasions. Once again?
Das’ monetary and economic management would reflect his skills, but the strength of the regulatory and supervisory policy framework under his watch would determine his legacy.
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