Will Rajan the Governor bite the reforms bullet?

K. R. Srivats
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Rajan would preside over a banking system that has turned weak in recent years.

Sell small under-performing public sector banks, possibly to another bank or to a strategic investor, to gain experience with the process and gauge outcomes – this was a controversial recommendation that came out of a committee on financial sector reforms headed by Raghuram Rajan in 2007.

Another interesting proposal was to free banks to set up branches and ATMs anywhere. Also, suggested was a more liberal approach to allowing takeovers and mergers, including by domestically incorporated subsidiaries of foreign banks.

So, when the name of Raghuram Rajan was announced on Tuesday as RBI Governor Designate, the question that cropped up in many economists’ and analysts’ minds was: Will he stick to his past recommendations in his new role?

It is too early to predict how decisive Rajan will be in his new role.

But the banking sector that he will oversee is hungry for reforms – be it for consolidation, human resource crisis, non-performing assets or the ticking time-bomb of restructured assets.

So, all in all, Rajan would preside over a banking system that has turned weak in recent years, partly due to the slowdown in economy and fall in global demand, and partly because of some promoters getting super rich at the expense of the financial system.

A bitter pill is what the doctor has ordered, but the crucial issue is whether Rajan has the gumption to administer it on the Indian economy.

The other moot question is will the wily bureaucracy play ball with him? Only time will tell.

(This article was published on August 6, 2013)
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