Shaktikanta Das reappointed as governor of RBI for three-year term

He had assumed charge as the 25th governor of RBI effective December 12, 2018

The government late Thursday reappointed Shaktikanta Das governor of the Reserve Bank of India (RBI) for three years, signalling its approval of the policies pursued by the central bank during the once-in-a-century pandemic crisis.

“The Appointments Committee of the Cabinet has approved the reappointment of Shri Shaktikanta Das, lAS Retd. (TN:80) as Governor, Reserve Bank of India for a period of three years beyond 10.12.2021 or until further orders, whichever is earlier,” a notification issued by the Appointments Committee read. 

A retired Indian Administrative Services (IAS) officer, Das had assumed charge as the 25th governor of the RBI effective December 12, 2018.

Before this he served as a member of the 15th Finance Commission for a year. If Das completes his six-year tenure, he would be the longest-serving RBI governor since Benegal Rama Rau, who served as head of the central bank between July 1, 1949, and January 14, 1957.

Bimal Jalan served as governor two months short of six years — between November 22, 1997, and September 6, 2003. No other governor since Jalan has served for over five years. Das’ full tenure will see him through the general elections in 2024. Das’ reappointment will ensure policy continuity, economists said.

“The RBI under Das demonstrated exemplary stewardship in cushioning the economy and financial markets from the heavy blow of Covid-19. The reappointment will ensure policy continuation, decisive and innovative policy initiatives, and effective communication with a wide spectrum of stakeholders,” said Siddhartha Sanyal, chief economist of Bandhan Bank.

Economists and bond market dealers now expect an imminent reverse repo hike, possibly in December itself, as a signal of policy normalisation. Without knowing of his continuance at the RBI, Das could have been circumspect in taking bold policy calls, analysts said.

With the repo rate at 4 per cent, and the reverse repo at 3.35 per cent, the policy rate corridor has widened to 65 basis points from its usual 25 basis points. This has to be brought back to 25 basis points.

The central bank has started its normalisation exercise despite being cautious in terming it as such. In many ways, the RBI has followed policies of central banks of developed countries, shaping them in accordance with India’s requirements. 

“The next three years will be equally crucial for the governor. In particular, the current dispensation at the RBI has firmly stamped a new discourse in monetary policy by adopting a discretion-based policy approach and putting the RBI at the same pedestal with the European Central Bank and US Federal Reserve, which was hitherto absent,” said Soumya Kanti Ghosh, group chief economic advisor at State Bank of India.

Like the US Fed, the RBI under Das is taking baby steps towards policy normalisation. In the October monetary policy, the central bank stopped further liquidity infusion, and then with a higher amount of variable rate reverse repo (VRRR), which will run up to Rs 6 trillion in December, the central bank will slowly remove the liquidity.

On Wednesday, the central bank announced a 28-day VRRR, in addition to its 14-day VRRRs. The idea is to keep liquidity out of the system for a longer period. VRRR, as Das had explained in his speech during the monetary policy press conference, is voluntary, but given the incentive of higher returns, all the past VRRRs have been successful.

Apart from policy normalisation, the central bank has other pressing issues that the governor is expected to address, for example, the bad debt issue of Indian banks.

The RBI expects bad debts to rise for Indian banks due to Covid-related stresses. The good thing, however, is that banks are adequately capitalised to handle deterioration in asset quality.

Under the RBI’s macro stress tests, the gross non-performing asset (GNPA) ratio of the banking system may increase from 7.48 per cent in March 2021 to 9.80 per cent by March 2022 under the “baseline” scenario, and to 11.22 per cent under a “severe stress” scenario, but banks have sufficient capital to take care of it “both at the aggregate and individual level, even under stress”, the half-yearly Financial Stability Report (FSR), released by the RBI in July, said.

The RBI governor must oversee Indian bonds’ inclusion in global bond indices and handle the resultant liquidity inflow, estimated to be at least $30 billion a year.

How the RBI under Das handles the growing presence of Big Tech, and disruptive fintech, in the banking space will be watched. 

Under Das, the RBI has embarked on an aggressive policy of reserve accumulation as the RBI governor sees that as the best insurance against policy flip-flops by developed country central banks such as the US Federal Reserve, which is taking the first steps towards the tapering off of its monthly $120 billion bond purchase programme.

The RBI has to manage the record-high market borrowing programmes of the government, which crossed the Rs 12 trillion mark for two successive years due to the Covid strain.