Exactly one year ago, Urjit Patel took over as the 24th Governor of the Reserve Bank of India (RBI) succeeding Raghuram Rajan. Patel was elevated as RBI chief after a three-year stint as deputy governor in the central bank.
The immediate challenges before Patel was to address the bad loan problem in the Indian banking industry dominated by state-run banks, ensure smooth redemption of $20-25 billion of foreign currency non-resident deposits and shifting to the new Monetary Policy Committee (MPC) framework.
Besides this, during his first year, Patel had to face probably the biggest challenge of his career when Prime Minister Narendra Modi, on 8 November 2016, demonetised Rs 500 and Rs 1000 notes to counter black money, fake currency and curb terrorism funding. After the note ban was announced, the RBI had to deal with immense cash shortage in the system. The RBI, under Patel, was also blamed for lack of transparency and frequent flip-flops in rules during the implementation of note ban.
Here are five charts that show us how key macroeconomic indicators moved during the first year of Patel:
In his first year, Patel cut the repo rate twice, by a cumulative 50 bps. The MPC cut the repo rate by 25 bps from 6.50 percent to 6.25 percent in the first round in October 2016. One bps is one hundredth of a percentage point. This was followed by another 25 bps in August this year after a 10-month pause. This time, the MPC cut the repo rate to 6 percent, the lowest level in six years.
Under the leadership of Patel, the central bank has so far managed to contain the CPI (consumer price index) inflation. Inflation slipped from 4.39 percent in September 2016 to 2.36 percent in July 2017. In June 2017, retail inflation hit a historic low level of 1.54 percent on dip in prices of food items such as vegetables, pulses and milk products.
When Patel took over as the governor, banking industry was in the midst of an NPA crisis. After the bank NPA clean-up process initiated by his predecessor Raghuram Rajan, the banking sector's gross NPAs swelled from Rs 7.06 lakh crore in September 2016 to Rs 8.29 lakh crore in June 2017. Public sector banks contributed over 90 percent of this chunk with their bad loans rising to Rs 7.33 lakh crore from Rs 6.30 lakh crore during the same period. After the bankruptcy code came into existence, the RBI began pushing banks to initiate recovery procedures against bunch of large corporate loan defaulters. The NPA battle is still on.
When Patel assumed office as the RBI governor, the rupee was around 67 level against the US dollar. It touched an all-time low of 68.87 on 24 November 2016. The home currency remained in the range of 67-68 until February this year. After that, the rupee began to strengthen and touched a high of 63.53 on 4 August 2017. Currently the unit is hovering at around 64.04 level against the dollar.
The country's forex reserves were at $367.8 billion when Patel took over. By 6 January 2017, that is four months, the kitty reduced to a low of $359.2 billion. From that point, the reserves began to rise and currently stand only a few billion dollar away to touch the $400 billion mark ($394.6 billion as on 25 August 2017). This is enough to cover 12 months of imports.
(With PTI inputs)
Published Date: Sep 04, 2017 05:07 pm | Updated Date: Sep 04, 2017 05:10 pm