Known for steering the central bank through challenging times, including the economic disruptions of COVID-19, Das leaves behind a transformed regulatory environment.
Aseem Dhru, Managing Director & CEO at SBFC Finance appreciated the outgoing governor’s efforts, especially in cleaning up balance sheets and promoting customer fairness.
However, with a slowing economy and ongoing inflation, he notes that the new governor will face different challenges, though banking regulations are expected to remain a focus.
Sanjay Malhotra, the Revenue Secretary, will take over as the new RBI Governor, beginning his three-year term.
This is the verbatim transcript of the interview.
Q: There was a big pushback from DFS, and generally the government for RBI’s housekeeping activities, banking regulation activities, the expected loss provisions, the extra provisions for infrastructure, the liquidity cover issue, and lots of new rules are sitting there. And obviously, PSU banks are asking the government to give more time. Do you think that now banks could get more time, and these could be pushed back?
Dhru: We should acknowledge, with a standing ovation, how the governor has ended his term and as the new governor walks into the pitch, the realities are a little different from what the previous governor had. We are now faced with a slightly slowing economy and inflation, which is still persistent.
In terms of regulations, every governor has had to focus on a particular activity that was considered critical by the governor. So Raghuram Rajan focused on the cleanup of banks’ balance sheets on the wholesale side, and Shaktikanta Das focused on two main things, a clean up of the balance sheets on all sides, not just wholesale, but the retail side as well, and customer fairness score, which was not what the earlier focus was.
So to that extent, there’s a balancing that has been attempted between the two. As far as a lot of these expected credit loss (ECL), provisions go, it was always the view to move the entire banking system to index. It was because nationalised banks wanted more time, they said that NBFC should move on this, while public sector banks and private sector banks will continue.
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You cannot have a system working with two different ways of reporting the same business. So eventually the move to index is a given, enough time has been given and it is very likely that the policy will be carried through.
Q: Something that Governor Das will be remembered for is the way he called a spade a spade. He didn’t care which bank it was, who the promoter was, or how big the entity was if there were deficiencies in service, or in compliance. We all know that with Kotak Mahindra Bank, Paytm, IIFL on some of the gold financiers as well, the actions were stringent. They were extremely precise. So was the communication. We got used to the era of very clear, long press releases detailing why someone has been stopped from issuing more cards, or why someone cannot onboard more customers to the digital route. On some of these fronts, do you think there will be continuity, or could new man bring in his own approach? What would you expect on the compliance part and other regulatory issues?
Dhru: What this governor has brought about the change in the overall way in which communication has happened to the industry at large, is that the earlier governors used to be a lot more cryptic, a lot more private, and not so expansive, in terms of laying out their thoughts.
The governor has realised two things. One is that the people have taken penalty as a cost of doing business. That is what has happened in the US as well. And therefore, the instruction is very clear that it is a one-strikeout. You either follow the law or you will be called out.
And if you take an analogy in a class, you don’t mind a strict teacher, as long as the teacher is fair. You protest to unfairness of teachers or when you think that you have been singled out, while others, bigger guys have got away with it, which has always been the complaint that we have in a lot of other things in the Indian economy.
What this governor has ensured is that nobody has any chance of complaining that they have been singled out, because the law has been applied equally to large players, small to foreign players and public sector as well as the private sector and even non-banking financial companies (NBFCs).
Each governor has a slightly different style, so I am sure that it will not be the same way. Some fresh thinking will be there both at the MPC level as well as in the way communication happens, but largely in today’s day and age of social media if you are not out there, putting your views up there, you are then opening the field for speculation. So in a way, I hope that the same level of communication is maintained with industry concerned.
Q: RBI Deputy Governor Michael Patra will not be there after January, new members, a new captain and a vice-captain. The first policy is seen as from the shadows of the finance ministry. Then he becomes an RBI man. So just your thought, will he have a problem with Patra going away? And how is he likely to tackle the immediate problem of slowing growth and rising inflation?
Bandhopadhyay: You are exactly on the ball. But before that, I just want to highlight one thing. If you look at the past few governors, when they came – things are comparatively benign compared with that. As D Subbarao came, and within a week we had seen the Lehman crisis. After that, Raghuram Rajan, a taper tantrum and the rupee had a free fall. Next Raghuram Rajan’s successor had demonetisation. Shatikanta Das during his tenure, had to face COVID and multiple other things.
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So right now the growth inflation dynamics and rupee are under pressure, but that’s a part of life. I don’t think there’s any huge, massive crisis looming over India. We are talking about geopolitics, what’s happening in Ukraine, Donald Trump, etc but still, barring the second quarter of the current fiscal we have inflation, which is being tackled with extreme care, and we have pretty large foreign exchange reserve. So I don’t think it’s a very tough time as such.
Having said that five of the six members of the Monetary Policy Committee (MPC) will be new in the February meeting, except for one Reserve Bank of India person, three MPC members from outside, for them, the December meeting was the first meeting, and Michael Patra and Governor Das would be away.
Sanjay Malhotra is very sharp. His understanding is pretty fine. He is not new to the financial sector. Bankers who had seen him as a DFS secretary said that he is cool, very sharp with numbers, apart from his other attributes, like he understands technology etc.
But five new members at MPC, that’s a tough call. So now we have to wait and watch.
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