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Informist, Wednesday, Jan. 15, 2025

 

NEW DELHI – Tuesday was Michael Patra's last day as deputy governor of the Reserve Bank of India, with the central bank allocating the departments he was handling to the other deputy governors until his replacement takes charge. But it should not have come to this.

 

The government invited applications for the post of the deputy governor of the RBI in early November and a committee comprising Governor Sanjay Malhotra, Cabinet Secretary T.V. Somanathan, and Department of Financial Services Secretary M. Nagaraju is currently busy screening candidates. And while it's not like the RBI cannot function with only three deputy governors instead of four, Patra's successor not being announced in a timely fashion is the third recent instance of a senior central bank official not being in place quickly enough to stop markets from speculating.

 

The most recent case, of course, is the appointment of the governor itself. To be sure, there was no delay in naming Sanjay Malhotra as Shaktikanta Das' successor. However, the announcement of his appointment went right down to the wire after weeks of speculation over whether Das would get another extension. Das' term ended on Dec. 10, with Malhotra being named as the 26th governor late on Dec. 9.

 

Similarly, the announcement regarding the three new external members of the Monetary Policy Committee--Ram Singh, Saugata Bhattacharya, and Nagesh Kumar--came late on Oct. 3, just days before the committee was to begin its meeting in Mumbai on Oct. 7. The situation was even more difficult in 2020, when the appointment of external members Shashanka Bhide, Ashima Goyal, and Jayanth Varma were delayed so much so that the RBI had to postpone the MPC meeting by more than a week.

 

The best-case scenario now is that the fourth deputy governor's name will be announced before the MPC meets on Feb. 5. However, there can be no guarantees this will happen. On Tuesday, the RBI allocated the Monetary Policy Department to Deputy Governor M. Rajeshwar Rao after Patra's term ended. If a new deputy governor who will handle the Monetary Policy Department is not announced in time for the next MPC meeting, Rao will vote on the interest rate decision. This won't be an unprecedented event, with two deputy governors--R. Gandhi and B.P. Kanungo--having voted on interest rates on a combined five occasions while they held temporary charge of the Monetary Policy Department. But considering the expertise required to formulate monetary policy--after all, there is an extensive vetting process when it comes to picking the external members of the MPC--it is probably best that persons with domain expertise make the relevant decisions, be it with respect to monetary policy or banking regulations.

 

One can imagine several reasons for an appointment not being made even on the last date of Patra's tenure, ranging from last-minute hiccups and procedural issues to difficulties in picking the right person. However, the terms of the senior RBI management are clearly spelt out and the end-date is known well in advance. And the speculation surrounding these appointments can have a real market impact. Sample the following from Nomura last week on the RBI's liquidity management: "... there has been a lot of speculation on the replacement of Deputy Governor Patra, as his term will end next week. We will closely watch RBI actions next week for any hint of a change in strategy."

 

All governments, whether fairly or unfairly, have a reputation for being inefficient and slow in making decisions. But some decisions are clearly more important than others and appointing the senior management of the RBI on time is one of them. The government will do well to make these appointments on time. And perhaps the RBI needs to drive this a bit as well? End

 

Edited by Saji George Titus

 

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