There has to be free, fair discussion between govt and RBI: Shaktikanta Das

Shaktikanta Das has been pragmatic and more accommodative of the financial market's concerns even as he keeps his counsel

As Shaktikanta Das, the 25th occupant of the sea-facing room on the 18th floor of the central bank’s headquarters completes three months in office, he’s more than lived up to the promise made on taking charge. “There has to be a free, fair, objective and very frank discussion between the government and the Reserve Bank of India (RBI). I like to believe that all issues, howsoever contentious, can be resolved through discussions.”

He hit the ground running — met up with the heads of banks — state-run (in two instalments) and private, non-banking finance companies (NBFCs), credit ratings agencies and in a much welcome break, with associations of small businesses and trade bodies (especially those representing the interests of micro-, medium and small enterprises (MSMEs) with three weeks being in office (and it must have been particularly tough giving up on the year-end celebrations). Now, it’s not that past governors didn’t interact likewise — the big difference was Das made sure the messaging was clear, and spot on: “I am reaching out to you; I am all ears.” And four-square at that.

He took to Twitter (a first by an RBI governor): “Will meet apex chambers/associations of industry and commerce tomorrow (January 17).” This signalled accessibility as structured interactions between lobby groupings like the Confederation of Indian Industry and Federation of Indian Chambers of Commerce & Industry had not taken place for a few years. In the process, he’s managed to (largely) bury “the ivory tower” tag attached to the central bank at times in some quarters of India Inc. He also made light of fire-brand deputy governor, Viral Acharya’s speculated exit: “I just had tea with him. He is still with the RBI!” he quipped in his first media interface in New Delhi.

He’s also moved double quick on the big lag seen in the transmission of interest rates to a cut in the repo rate, an issue which successive RBI governors — from Duvarri Subbarao, Raghuram Rajan to Urjit Patel — have grappled with. Das cut through the bureaucratic red tape and allowed the State Bank of India (SBI) to voluntarily link the interest rate it offers on savings bank deposits of over Rs 1 lakh to the repo rate. No talk of a committee being set up to see if banks could do so on their initiative without a regulatory nudge; SBI’s move will force other large lenders to follow suit and help a faster transmission of changes in the policy rate, a huge plus for the economy.

The art of giving; and not…

A big complaint against Mint Road in recent times has been it had turned “preachy”, as a senior official at a leading lender put it. “It was all about the rule-book… little appreciation of what actually happens on the ground. I concede a lot of it was not desirable, and had to change, but so is a bull-in-the-china shop approach to it,” the person said. Change is in the air. 

Points out V G Kannan, chief executive of the Indian Banks' Association “The positive part is he’s willing to hear bankers out, though he may not agree with us.” A senior official at Bank of Baroda says, “Easing the curbs on state-run banks under the Prompt Corrective Action (PCA) has increased customer confidence as the brakes on lending (for an extended period) was definitely impacting their business.” Adds Karnam Sekar, managing director and chief executive officer at Dena Bank: “He’s communicative and met stakeholders like banks, finance companies within a fortnight of taking charge”. The bigger message in all this: Das thinks “win-win”.

Das has also displayed a sense of timing — a new year gift for MSMEs by way of one-time restructuring scheme maximum exposure of Rs 25 crore to be implemented by FY20. This was critical given the fracture in the relations between Mint Road and South Block. When the proposal was first mooted before Das came on board, many had echoed Srikanth Vadlamani, vice-president (financial institutions group) at Moody’s Investors Service observation that, “The track record of such dispensations on asset classification, when seen over the last few years, has shown that they have largely been unsuccessful in addressing the underlying stress”. 

Das’ pragmatism lay in the fact that the relaxation was only a one-year window, but it bought goodwill in the process. When asked whether the move was retrograde or not, Das parried: “It’s a value judgement. I don't want to go into the value judgement, whether it is retrograde or progressive. These are adjectives, I don’t want to go into that.” On farm loan waivers, a big political talk-point ahead of the polls this summer, he’s taken an effort to not sound shrill: “Elected governments have the constitutional mandate to take decisions with regard to their finance but every state government, before taking decisions on any kind of farm loan waivers, has to very carefully examine its fiscal space.” It’s the stance of finance minister, Arun Jaitely; it’s always good to know your reporting head’s mind.

Yet, on other matters like giving a breather to NBFCs on liquidity norms and prudential norms, the infamous February 12, 2018 circular, and on governance, he has held his own. Here Das has toed the line of his predecessors — as evidenced by the move to tighten the asset-liability management norms for NBFCs and making private banks’ chief executive remuneration linked to their standing as a good corporate citizen. 

“Once you are in the Governor’s chair, your New Delhi world view anyway undergoes a change,” said a former RBI official who had sat in a room adjacent to a past Mint Road chief. It’s an oblique reference to the central bank’s institutional memory, though he will not tell you if it helped refresh it for the Governor of his time. It’s worth recalling career bureaucrat D Subbarao’s dig at then finance minister P Chidambaram, a week before his term as RBI governor was to end: “I do hope Chidambaram will one day say, ‘I am often frustrated by the Reserve Bank, so frustrated that I want to go for a walk, even if I have to walk alone. But thank God, the Reserve Bank exists’”. 

Das’ deft hand was most visible in the manner he dealt with NBFCs. He reiterated the central bank will go ahead and strengthen the asset-liability management and harmonise it across different categories of these firms. To that extent NBFCs have no reason to thank God, but he gave them enough reason to thank him when he threw them a lifeline. Das provided additional access for NBFC funding by going easy on norms to securitise their books — even though it will in no way help them grow their business. That’s Das as a Houdini for you; and taking care of the optics as well. Yet there was also a mis-step along the way when he told a group of 60-70 foreign portfolio investors in Hong Kong that an asset quality review (AQR) for NBFCs was ruled out in the immediate future, saying such a move might not be well-received. “It gave out the message that you will have trouble if this is done. That’s not comforting,” said a senior banker. Another way of looking at it perhaps is as Das’ realisation that there is no point rocking the boat at this stage.

So far, Das has played the role of a governor even as he has worn the hat of an interlocutor. That said he will also have to dispel the perception that he is too much of a “New Delhi person”. The days ahead will test him as he walks the tightrope as a person who has to guard the autonomy of the central bank even as he takes on board the concerns of the Centre, India Inc and all matters in between. For now, the unsaid, yet unequivocally is ‘I also do what I do — and listen too’.