After Duvvuri Subbarao was given the reins of the RBI, the view in the banking community is that the coordination between the central bank and Ministry of Finance will certainly improve.
Bankers say fin secy at Mint Road will result in better co-ordination
MUMBAI: A day after Duvvuri Subbarao was given the reins of the Reserve Bank of India, the overwhelming view in the banking community is that, the policy stance notwithstanding, the coordination between the Mumbai-based central bank and the Delhi-based Ministry of Finance will certainly improve.
Though bank treasurers expect the new governor to continue to focus on taming inflation at least for the time being, going forward, differences between the RBI and the finance ministry should lessen if not vanish, they say.
The thinking at the RBI and the finance ministry is not always in-sync, particularly with regards to the government’s increased bond issuances and also whether to allow foreign banks more leeway in India.
Manoj Rane, country treasurer with French bank BNP Paribas, says the co-ordination between North Block and Mint Road will “definitely” improve once the former finance secretary takes over.
“I think this was one of the reasons why he was picked ahead of the other contenders,” he said.
It is not known whether Subbarao asked for the post, but he was competing with at least a couple of heavyweights, like RBI deputy governor Rakesh Mohan and Montek Singh Ahluwalia, deputy chairman of the planning commission.
Former chairman of the prime minister’s economic advisory council C Rangarajan also could have played an important role in suggesting Subbarao for the job.
He was brought to Delhi by Rangarajan, who was Andhra Pradesh governor when Subbarao was finance secretary in the state government.
Bankers say the Rangarajan link can’t be missed, because of the high regard the former RBI governor enjoys in the top tier of the central government.
Partha Mukherjee, head of treasury at Axis Bank, says Subbarao’s experience at the finance ministry will help him keep in mind the government’s point of view on policy matters.
“There will be a convergence of ideas between the regulator and the government, which will be good for the markets.
Though he is expected to maintain a tough line on inflation, there could also be an increase in sensitivity to the needs of the government especially on growth,” he said.
Bankers say that while Subbarao’s experience at the finance ministry will come in handy, his inexperience at the central bank may not be a hindrance.
In fact, his fresh perspective on banking may actually prove to be an advantage for the RBI, bankers said.
Sundeep Bhandari, managing director and head, global markets, South Asia at Standard Chartered Bank, says the new governor is likely to continue with the present tough stance on inflation by the RBI.
“Overall, he is likely to be firm and tight just like governor Reddy. He will be watching the markets closely. But the fact that he is moving into a strong and well respected organisation will help,” he said.
Treasurers are hoping that the new governor continues to on the liberalisation path with regards to the financial markets.
Sudhir Joshi, treasurer at HDFC Bank, hopes the new governor will help in the development of the markets further.
“As we have seen with the introduction of the exchange traded currency futures, I hope it continues in the same way,” Joshi said.
r_joel@dnaindia.net
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