RBI commentary: Pehla ball aur ye lagaa sixer

India Infoline News Service | Mumbai |

Raghuram Rajan’s CEO kind of approach, with set target of achieving things is a welcome sign. The debate is now whether the system will let him deliver or whether he too will fail the system test. History will judge him by what he does over a three-year period rather than the way our market reacts over a week.

The new RBI governor has definitely bowled them over even before taking guard. Entering the Mint Street crease, he has been lofting expectations and scoring so quickly from the word go that even seasoned television anchors were at a loss for words. Never in the history of Reserve Bank of India, has there been so much of media attention and glare when the governor changes. In the recent past, Raghuram Rajan, has been making headlines and has been subject to scrutiny by almost everyone. The media too seems to be going at times overboard sometimes glossing over his looks. The “Name's Rajan, Game's Bond, was the ET photoshopped picture caption showing the RBI governor as James Bond with a rupee gun. A magazine in Tamil Nadu commented that Rajnikant now has competition and another went on to say that RGR is an able successor to the incomparable MGR. He comes embedded with IIT, IIM as well as MIT degrees. Besides his pleasing personality and sporting ability, may be if he would sing, Rajan would have perhaps got tagged as the ‘complete man.’

The Guv’s statement to the media was purposeful and spoke of intent. It showed him as a man who is out on a mission. Nobody expected him to come and make such dramatic statements on the first day in office. It was more like the first show of a much-awaited movie or perhaps equivalent to Sehwag blasting the first ball on a benign Kotla pitch. Unfortunately, the comparison might not be apt here because Raghuram Rajan is not batting on a benign Kotla pitch but has come in when the economy is facing huge challenges.

The stock market and the rupee too appear to be rejoicing from the day he stepped into Mint Street. His CEO kind of approach, with set target of achieving things is a welcome sign. The debate is now whether the system will let him deliver or whether he too will fail the system test. History will judge him by what he does over a three-year period rather than the way our market reacts over a week. To an extent, he is carrying the burden of expectations. Here I urge caution. People should not have random expectations. Remember how our indices hit the upper circuit limits when Dr Manmohan Singh took charge with UPA II in May 2009; miracles were expected and the market behaved as if Dr. Singh had a magic wand to vanish our woes. Unfortunately, Dr Singh failed to deliver and presided over what is now seen as the most incompetent, confused and lumbering government we have ever seen, not to mention the great heights corruption has reached in this regime.

Dr. Rajan has made it clear that he takes over at the peak of popularity and certain steps he takes may not be popular. He has a challenging task ahead of him. Besides having good intention, we need a policy framework to deliver. In my earlier stint as a young dealing officer in ICICI, debt recovery was even then a topic of discussion. We would often joke that there are sick companies but never a sick promoter. To bring such errant promoters to book is a task where the RBI governor needs political, legal and regulatory framework. Kingfisher Airlines is the most recent case, where the bankers could not even auction Vijay Mallya’s bungalow properly; nor could they sell shares at the right time.

In his speech, Dr. Rajan has also not reversed the stance of RBI of fighting inflation.  He has to fight 3 battles at the same time – bring down inflation, stabilise the currency and kick-start growth. So when normal people are expected to handle dilemma, he has to deal with a trilemma. The first thing was done as he entered which is to get the feel good factor back. Most of the time sentiments make a difference.

Just because the governor has changed doesn’t mean that the outlook for banking stocks will change. This quarter will be extremely challenging given the spectre of NPAs hanging over. Only those banks with CASA, ability to raise affordable deposits and those who have kept loan books under control will be able to remain healthy. Will the rate cycle reverse? We have to wait tillSeptember 20 and see.

Will the Guv deliver? I will bet on it. The reason being he has nothing to lose. He has a tenured professorship in a pedigreed university in USA. Post his stint with RBI he would have enough openings in any market. From whatever I can make out, unlike others, he has no further ambitions like being PM/ FM/ Planning Commission Chairman / CVC Chairman etc. I wish him all the very best as he unleashes the financial sector reforms. I am sure the nation can bank on him.

 

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