Raghuram Rajan: Man on a mission

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New RBI Governor Raghuram Rajan at a press conference at RBI Headquarters in Mumbai after taking charge on Wednesday.
PTI New RBI Governor Raghuram Rajan at a press conference at RBI Headquarters in Mumbai after taking charge on Wednesday.

Excitement was palpable at the mint street office of the Reserve Bank of India. A number of high profile dignitaries swarmed the central bank office to bid adieu to the outgoing Governor, D.Subbarao and greet the incoming Governor, Raghuram Rajan. Rajan's reform series on his Day-1 in office gave ample evidence that the 50-year-old governor had done his home work. In his 18-minute speech Rajan said that though the times are tough, the India story is still strong. Here is a compilation of the immediate and not-so immediate measures that the new governor outlined:

a) There is a need to liberalise markets further. He said that the RBI (in consultation with the markets regulator) will lift restrictions on investment and position taking. This could be fraught with risks, he warned. However, such moves are necessary to prevent investors from trading on foreign shores where position taking is allowed substantially.

b) The RBI will strive towards more transparency and predictability in its decisions.

c) The RBI will announce the award of the new bank licences early next year. It will also examine the possibility of keeping the process of issuing such licences on regular intervals, thereafter.

d) Domestic Banks will no-longer have to come to the RBI for setting up a bank branch. Banks may freely open branches, while adhering to the laid down norms like one bank branch in rural areas for every three bank branches in urban centres.

e) The RBI will launch the consumer price index-based National Investment Savings Schemes for retail investors by November 2013. If the current inflation indexed bonds will still remain is unclear.

f) The RBI will soon come up with guidelines to encourage foreign banks to set-up business in India as subsidiaries. This will ensure "near-national" treatment of such banks on reciprocal basis, Rajan said.

g) Has asked Deputy Governor Urjit Patel, together with a panel, to come up with suggestions in three months on what needs to be done to revise and strengthen our monetary policy framework.

h) There is a need to reduce the requirement for banks to invest in Government securities in a calibrated way, to what is strictly needed from a prudential perspective.

"This cannot be done overnight, of course. As Government finances improve, the scope for such reduction will increase. Furthermore, as the penetration of other financial institutions such as pension funds and insurance companies increases, we can reduce the need for regular commercial banks to invest in Government securities," he said.

i) Has asked Dr. Nachiket Mor to look into what needs to be done to make the financial inclusion agenda more effective.

j) Intends to facilitate electronic bill factoring exchanges, where MSMEs can be paid electronically by large corporates.

k) Will examine necessary steps to accelerate the working of debt recovery tribunals and asset reconstruction companies.

l) With an intention to check the rising non performing loans of banks, RBI proposes to collect credit data and examine large common borrowing among banks.

(Compiled by Satyanarayan Iyer)

(This article was published on September 5, 2013)
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Rajalakshmi Nirmal and Radhika Merwin of the BL Research Bureau discuss the role of asset reconstruction companies (ARCs) in the banking sector and how they deal with bad loans.


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