Urjit Patel checks in at RBI to complete Rajan’s ‘deep surgery’

Mumbai: Urjit Patel, the new Governor of RBI who has maintained a contrasting low-profile to outspoken and rockstar-like Raghuram Rajan, has his immediate task cut out — finishing the ‘unfinished agenda’ of his predecessor on completing ‘deep surgery’ of banks and winning the war on inflation.

Incidentally, it was Patel — often referred to as ‘Dr Patel’ by Rajan — who scripted a new framework for fighting price rise, which earned him the informal title of ‘inflation warrior’.

However, it is the ‘deep surgery’ ordered by Rajan to cleanse the balance sheets of the banks from bad loans that may pose greater challenges for Patel, as a number of banks, corporates and others have been lobbying hard against what they call the ‘unwarranted urgency’ shown by the RBI in this regard at the cost of hurting investment climate.

Unlike Rajan, who took charge at a time when global markets were volatile and concerns were being raised about the rupee, the Gujarati-origin and once Kenyan citizen Patel has come in when financial markets are much more stable and concerns have also subsided about any potential dollar flight due to impending redemption of NRI bonds.

52-year-old Patel’s appointment as the 24th RBI Governor is effective today, though his first working day could be September 6, due to today being a Sunday and tomorrow being a holiday for Ganesh Chaturthi.

A number of corporate leaders and bankers who have previously worked with Patel, including during his tenure as RBI’s Deputy Governor and earlier on boards of some companies, said he is expected to show “much better understanding” of the problems the companies and banks are facing due to the central bank’s AQR (Asset Quality Review) directive.

Some are even hopeful that the AQR regime may actually see some change, though Rajan kept on repeatedly saying in his last days at RBI that the process should be completed by March 2017, a target he had set for cleaning up of the banks’ balance sheets.

With public sector banks accounting for a large portion of the bad loans, the clean-up exercise has raised heckles of many in the government as well, though not many have been public with their views, fearing adverse commentary.

Besides having worked with IMF and Finance Ministry, Patel also has corporate experience — probably the first for any RBI Governor — including with the country’s biggest corporate house, Mukesh Ambani-led Reliance Industries Ltd.

Besides, he was associated with Gujarat State Petroleum Corporation, IDFC and MCX, among others, as member on their boards and other roles.

“The change in personality that Patel brings in to the top job at RBI appears to be very comforting to the industry and bankers who were often at the receiving end of the barbs, mostly in form of policy actions, from Rajan,” a veteran banker said.

While everyone has been effusive in showering praise on Patel being chosen to succeed Rajan, many industry leaders, top bankers and influential marketmen said they are hopeful that his corporate and finance background would help taper down RBI’s “hawk-eye fixation” on checking inflation and the ‘deep surgery’ to remove bad loans.

The wish list that ‘Dr Patel’, as he is commonly referred to as, faces is long and could be difficult to fulfil on many fronts — lower the rates, go easy on banks and borrowers, be liberal with grant of banking licences, safeguard foreign reserves and further beef them up.

Ironically, Patel himself was the “Brahmastra or the master tool”, as described by a top functionary at an informal industry gathering recently, that Rajan used in his battlefield — where RBI is required to control inflation without hurting growth while also catering to unending demands for rate cuts, and also clean up books of the banks from bad loans, including those induced upon them.

The top functionary also told the industrialists and bankers present there that Patel was chosen to ensure continuity, given his tenure as Deputy Governor, as the government did not want any further negative publicity or any adverse impact on currency, bonds and stock markets.

Rajan’s sudden announcement that he would not opt for a second term and return to academia let to a sharp criticism from some quarters of the government. It was said that he was leaving due to his frustration that no one from the government came out in his support when some right-wing leaders were indulging in ‘ad hominem’ attacks on him rather than criticising his policies.

The government and corporates are hopeful that Patel, who has kept a low profile so far, would keep away from Rajan’s rockstar-like public utterances and candid views on non-economic topics.

On his part, Rajan never admitted to being a hawk — a central banker is said to be hawkish if he or she prefers keeping rates extra high — and once famously quoted Patel as telling him repeatedly that they at RBI “are neither a hawk nor a dove, but an owl which is symbol of wisdom”.

Markets and industry are now waiting for the ‘owlish’ monetary policy after the James Bond-like commentary they have had for the past three years from a Governor known for numerous quotable quotes — one of them being “My name is Rajan and I do what I do”.

Asked once by a student why the humble dosa — the South Indian dish — continued to cost high when RBI was claiming a victory over inflation, Rajan blamed it on lack of technology upgrades from its traditional tawa preparation and high wages of the person making it.

So far, Patel has been rarely heard in the media and analyst conferences, though like Rajan, he too has worked with International Monetary Fund (IMF) before coming to India — first at the Finance Ministry and then at RBI.

Born on October 28, 1963, Patel is a PhD (Economics) from Yale University (1990) and M Phil from Oxford (1986). He has been a non resident Senior Fellow at The Brookings Institution since 2009.

He was with IMF between 1990 and 1995 and worked on the US, India, Bahamas and Myanmar desks. He was on deputation (1996-1997) from the IMF to RBI.

In 1996-97, he had nearly two years of association with the RBI, when he was sent on deputation from the IMF to advice on development of the debt market, banking sector reforms, pension fund reforms, real exchange rate targeting and evolution of the forex market.

This was followed by a three-year stint as a consultant with the Department of Economic Affairs in the Finance Ministry.