RBI chief seen as safe no matter poll winner

RBI Governor Shaktikanta Das has built up support on both sides of the political divide, making his position relatively safe under a new government no matter who wins the election.

As an ex-career bureaucrat, Das has worked under administrations led by both Prime Minister Narendra Modi’s Bharatiya Janata Party and the opposition Indian National Congress. He’s likely to stay in his post after India concludes its election process on May 23, central bank watchers say.

That should be a relief to investors who had to grapple with a fair bit of upheaval at the Reserve Bank of India late last year. Urjit Patel resigned abruptly as governor in December after tussling with Modi’s government over a number of issues. Das was appointed shortly after for a three-year term that ends in December 2021.

“Das has worked with distinction with both governments and therefore the probability of his continuing and completing the tenure should be extremely high," said Ashok Chawla, a former top government official who worked with Das in the finance ministry.

Before becoming governor, Das was economic affairs secretary in Modi’s government, and the public face of the prime minister’s controversial decision in November 2016 to ban high-value currency notes.

Since his appointment at the central bank, he’s taken a number of steps to support the economy and that helps Modi’s regime: he’s lowered interest rates, relaxed lending norms for banks to increase credit flow, and named a panel to consider transferring the RBI’s excess capital to the government. With data on Thursday showing activity in India’s manufacturing sector slowed to an eight-month low in April, Das is likely to retain his dovish bias on monetary policy.

Comfortable working

He’s just as comfortable working with a Congress-led administration. As an official in the finance ministry under then Prime Minister Manmohan Singh, he was instrumental in preparing federal budgets, working closely with then-Finance Minister Palaniappan Chidambaram.

“He’s a close follower of Chidambaram, so he will be comfortable” in a Congress-led government, said Subramanian Swamy, a lawmaker from Modi’s party. Even so, Chidambaram’s Twitter post following Das’s appointment as RBI governor suggested he wasn’t too happy with the decision.

Das was moved to the fertilizer ministry in December 2013 after a five-year stint at the finance ministry under the then Congress-led government. Modi brought him back to the finance ministry soon after coming to power in mid-2014, appointing Das to head up the tax department, which was trying at the time to win back investors’ confidence.

Addressing concerns

Modi’s government has tried to show it’s more business-friendly, and Das has taken a more conciliatory approach toward banking sector regulations compared to his predecessor. He has been meeting with bankers to hear their concerns about liquidity constraints in the economy, and given more leeway to small and medium scale enterprises with regard to their loan repayments.

Patel, who wanted to clean up a banking system saddled with the worst non-performing loan ratios among the world’s major economies, had repeatedly clashed with the government about relaxing lending rules for some weak state-run banks. Das has eased those curbs in recent months, including allowing weak banks to lend again.

“The decision by the RBI to remove a number of public sector banks from the strict lending restrictions relatively soon after the new Governor’s appointment does suggest a softer approach towards central bank regulatory supervision of the troubled public sector banks,” said Rajiv Biswas, APAC chief economist at IHS Markit, Singapore.