Experts say it could be a small factor but believe the banker would be guided mainly by inflation rate when reviewing monetary with the monetary policy committee (MPC)
His appointment may signal continuity of the ongoing monetary policy, but many feel Urjit Patel, who will be taking over the reins from the current Reserve Bank of India (RBI) governor Raghuram Rajan next month, could be a little more "conscious of considerations that weigh on the mind of the industry" even as he targets inflation aggressively.
D K Srivastava, chief economic advisor of EY, saw Patel's appointment as government's intent to maintain continuity in monetary policy but said the new governor, who has some exposure to Indian industry, could be more sensitive to industry's concerns than his predecessor.
Apart from holding several advisory roles in the state and central governments and working with the RBI and international monetary fund (IMF), Patel's CV shows he has also worked as president of Reliance Industries Limited (RIL) and executive director (ED) of Infrastructure Development Finance Company (IDFC). Rajan, on the hand, has spent most of his working life in academia.
"There is, of course, the situation that his exposure to Indian economy and industry has been long. Therefore, he would probably be more conscious of the considerations that weigh on the mind of the industry. (Though), these are small factors. The overall guidance would continue to be inflation targeting, and CPI (consumer price index) behaviour would be closely watched, and then whatever room becomes available then these other factors (industry concerns) would play a role," he said.
Khushroo Panthaky, director, Grant Thornton Advisory Pvt Ltd, also said given his "experience" he is good for the corporates but it was too early to come to that conclusion.
"I think given his experience, he is good for the corporates but we do not know him much as an individual in terms of what kind of nature or what kind of aggression or determination he would have, so it's a matter of time before that will come out. But yes, he is good for the corporates. That's what I believe," he said.
Panthaky called his appointment "relevant and appropriate" at a time when economic challenges plague India even as some fundamentals were looking up.
He said in the "push and pull" that ensues between the finance ministry and RBI over curtailment of inflation and growth, it was imperative to have someone who was steadfast in his stand at the helm of the central bank.
"You need a very strong and determined RBI governor to make sure that everything that gets dictated by the ministry is not always accepted. Only when a person is experienced, knowledgeable and fearless then things will happen for the good. It (Patel as governor) is a very relevant and appropriate appointment," he said. During his three-year term, Rajan not only addressed the stressed assets issue with an iron hand but also stabilised the rupee and pinned down the inflation rate, which has again started climbing up over the past few months. He also reconstituted the monetary policy framework.
EY's Srivastava believes Patel would have tougher time targeting inflation as he would be working with six-member monetary policy committee (MPC) which would be taking a call on bank rate revisions once it is constituted. "I think he would be having the same stance as Rajan but the difference would be that the MPC would have three members from outside (government officials), who could tilt the balance in favour of growth and not inflation control. It (tilt towards growth) would come not so much from the RBI but more from the overall structure of the MPC," he said.
Lately, led by food prices, consumer price index (CPI) inflation has started inching up and crossed 6% in July. It has breached the 5% target of RBI for the current year. A C Mahajan, chairman, Banking Code and Standards Board of India (BCSBI), said one of the major challenges for the new governor would be to continue on Rajan's path of asset quality enhancement. However, he felt the worst was over and expects no further deterioration in the non-performing assets (NPAs) with economic environment improving.
"As far as NPA management is concerned, instructions are already in place and most of the banks have already started cleaning up the books. Everybody is aware that the worse is over, now it is only likely to move up. Hence, accretion in NPA will definitely be less," he said. Mahajan expects the issue of transmission of central bank's repo rate cut by commercial banks to be resolved with the new methodology for computing base rates in place. "Since the base rate today is to be calculated on the basis of the incremental cost of deposits and not on the historical average cost of deposits, hopefully, the transmission (of repo rate cut of 150 basis points by RBI) will be effected as desired by the RBI monetary policy," he said.
Panthaky said had Rajan been given some more time, he would have seen through the transmission of the rate cuts by banks to consumers too. He said Patel has the tough task of ensuring that the RBI keeps monitoring the credit appraisal processes of some of the large accounts and specific industry segments that are going through tough times and have a potential not to be in line with the growth pattern of the country.
Outgoing Rajan has been very clear that March 31, 2017, all NPAs should be provided for. This would be a tough task for Patel with a huge NPA of public sector banks (PSBs) to the tune of over Rs 6 lakh crore.
praveena.sharma@dnaindia.net
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