India’s government named Shaktikanta Das, a seasoned financial bureaucrat, as the new governor of the Reserve Bank of India (RBI) on Tuesday, replacing Urjit Patel, whose abrupt resignation roiled financial markets.
Das held key positions both under the ruling Bharatiya Janata Party and the previous Congress-led government before retiring in 2017.
On Monday, Patel’s resignation came after over a month-long tussle over policy with the government that raised concerns about the central bank’s independence.
However, experts believe that the appointment of a bureaucrat as RBI chief will question the credibility of the institution. If a bureaucrat is made RBI Governor, he won’t enjoy the credibility.
Markets will see him as a person sent by the govt, former RBI governor D Subbarao told ET Now. Subbarao further said that RBI must continue to enjoy the autonomy on the issue of reserve transfer and liquidity.
It is also to be noted that there have been differences between the North block and the Mint Street over various issues including transfer of RBI reserves.
While the government wants RBI to pay a higher dividend to spend in an election year, RBI believes that certain amount of reserve is needed to be kept with RBI to maintain stability in the currency and debt market.
It may be noted that Mint Road and North Block agreed to bury the hatchet, and decided to iron out prickly issues such as governance of state-owned banks, liquidity issues at NBFCs and relaxation of lending curbs on financially stressed banks during the previous board meeting on November 19.
Market experts believe Urjit Patel resigned due to difference with the government over these issues.
Many banking experts are of the view the liquidity crunch has become a bone of contention between North Block and Mint Road. The finance ministry wants a relaxed PCA so that weak public sector banks can lend more freely.
The banking regulator has barred 11 public sector banks from lending under the PCA plan for their worsening financial health until they improve their capital ratios, cut bad loans and become profitable.