Three years of Raghuram Rajan at a glance

Comments (0)

When Raghuram Rajan, the man who famously predicted the 2008 global economic crisis, took over as RBI governor the economy was in tough times. Inflation was high, the investor outlook was low, Rupee was depreciating and the government was as good as non functional. It is very important to understand how has he shaped the policy of the RBI and brought the Indian economy on track : 

On NPA Management

  • Introduced Strategic Debt Restructuring (SDR) Scheme, which allows banks to convert a defaulting company’s debt into equity and take majority control. The scheme gave banks power to change management.
  • Gave banks a deadline to clean their balance sheets by FY 17 as a result of which lenders reported huge losses and spike in bad debts in subsequent two quarters. 
  • Introduced scheme for sustainable structuring of stressed assets, which allows banks to do deep restructuring of stressed projects without changing the management
  • Tightened wilful defaulter norm, as per new norms only nominee and independent directors who are not whole-time board members of a 'wilful defaulter' firm would be excluded from the list of a wilful defaulter.
  • Introduced Joint Lenders’ Forum (JLF), Special Mention Account (SMA), and Corrective Action Plan (CAP) for quick resolution of stressed assets.

Stabilized the slipping Rupee:

RBI introduced a fixed rate swap for FCNR (B) deposits to attract NRI deposits that shored up the currency. The FCNR (B) deposits dollar fund also boosted foreign exchange reserves.

Battle against inflation

  • Set up a panel under Urijit Patel for inflation targeting.    
  • Retail inflation declined as result of it from the high levels of 9.8 per cent in September 2013.

Rate Cuts And Transmission :

  • Introduced the Marginal Cost of Fund based Lending rate for pricing of loans to ensure faster transmission.
  • Regularly told banks to reduce their lending rates in accordance with interest rate cuts.

On New Banks :

  • Introduced niche banks-small finance banks and payments banks-in the Indian banking system.
  • Issued licences to ten small finance banks and eleven payments banks.

However it should be noted that whoever succeeds Rajan (there are many names like Arundhanti Bhattacharya, Urjit Patel, Rakesh Mohan, Arvind Subramanian ) will have to deal will some tough challenges, though Rajan has achieved a lot in his three years as RBI governor.

Practice Questions