 "Urjit Patel")
Here are a few challenges that Urjit Patel will have to deal with once he takes up the mantle as the new RBI Governor
1) Redemption of FCNR (B) deposits
The Reserve Bank of India (RBI) raised about $35 billion through these deposits in September-Novembe 2013. Most of the deposits are getting due this year and the central bank has guided that the resultant dollar outflow (about $20 billion) could create temporary liquidity crisis in the market. Outgoing governor Raghuram Rajan though, has guided that it should not be a challenge if managed well. Nevertheless, for the new governor, FCNR (B) deposits remain a daunting challenge that could destabilise the domestic exchange rate and push rupee towards record lows.
2) Inflation
Inflation has started inching up, led by food prices even as global commodity prices, particularly that of oil has started ticking up. June CPI rose to a 22 month high of 5.77 per cent, much higher than RBI’s comfort zone of 5 per cent and seriously jeopardise RBI’s efforts in containing long term inflation at 4 per cent, as per the monetary policy framework’s inflation targeting model.
3) Growth push
Rajan was criticised for his stern take on inflation and not reducing rates enough. The new governor may have to cut rates sharply to let growth take place in a broadbased manner. Certainly, this is what the government and the industry body want.
4) Asset quality resolution
Public sector banks’ gross bad debt neared Rs 6 lakh crore at the end of fiscal 2015-16 as banks reported heavy bad debts under RBI’s asset quality review. The challenge that remains now is how the central bank will go about with the resolution process as RBI’s previous schemes have not been very effective.
5) Public sector bank capitalisation
Indian banks need more capital to meet credit demand at a growing economy. For now the capital is adequate, but has seen serious erosion with the rise in bad debts. So much so that the erosion was even higher than government’s capital infusion of about Rs 25,000 crore.
6) Bank consolidation
The government has already taken the first step by announcing that the associated banks of State Bank of India will be merged with the parent. It also wants to privatise IDBI Bank as a precursor to larger consolidation move in the Indian banking industry. The new governor will have to oversee the consolidation.
