Two years of Urjit Patel as RBI governor in charts: Falling rupee is a major challenge in third year of his term

Exactly two years ago, Urjit Patel took over as the 24th Governor of the Reserve Bank of India (RBI) succeeding Raghuram Rajan. Patel was elevated as the RBI chief after a three-year stint as deputy governor in the central bank. In the first year of Patel’s tenure as the RBI governor, he had to face the biggest disruptive move of the Narendra Modi government, i.e demonetisation. During his first year, Patel had to face probably the biggest challenge of his career when Prime Minister Modi, on 8 November 2016, demonetised Rs 500 and Rs 1,000 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. [caption id=“attachment_4390411” align=“alignleft” width=“380”] File image of RBI governor Urjit Patel. AFP.[/caption] In the second year, Patel had to focus on fighting the bad loan mess in the banking industry dominated by state-run banks, often taking on the wrath of the finance ministry. At the fag end of his second-year, Patel has to deal with depreciating rupee. The domestic currency has crossed 71-mark for the first time on 31 August on both local as well as global factors. The rising crude oil prices, ballooning trade and current account deficit, concerns over US-China trade war, contagion risks from Turkey and Argentina are some of the factors that has fueled the rupee’s downward trend. In year-to-date, the rupee has fallen by 11 percent – making it the worst-performing currency in Asia. In this situation, the role of the RBI will be closely watched world over and how the central bank under the leadership of Urjit Patel would manage to arrest the fall in the rupee will be interesting to see. Here are six charts that show us how key macroeconomic indicators moved during the two years 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. However, during Patel’s second-year, the MPC under the leadership of Patel hiked the repo rate twice by cumulative 50 bps. On 6 June 2018, the MPC raised the repo rate by 25 bps from 6 percent to 6.25 percent and again on 1 August 2018 by 25 bps to 6.5 percent. Barring a few months, 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 4.17 percent in July 2018. In June 2017, retail inflation hit a historic low level of 1.54 percent on a dip in prices of food items such as vegetables, pulses, and milk products. The highest CPI inflation of 5.21 percent was reported in December 2017. Bank credit growth is the most important barometer to check the health of the economy. When Patel took over as governor in September 2016, the bank credit (non-food) growth was at 10.8 percent. But because of the ill-effects of demonetisation, it fell to just 3.3 percent in five months (February 2017). It remained in the range of 4-7 percent for a few months and started showing improvements from November 2017 onwards. It again hit 10 percent in December 2017. Currently, it stands around 11 percent. When Patel took over as the governor, the banking industry was in the midst of an NPA crisis. After the bank NPA clean-up process initiated by his predecessor Raghuram Rajan, in two years time the total gross non-performing assets of the banking industry surged by Rs 2.98 lakh crore to Rs 10.03 lakh crore in June 2018 from Rs 7.06 lakh crore in September 2016. Nearly 90 percent of that bad loan chunk is contributed by the public sector banks. After the bankruptcy code came into existence, the RBI began pushing banks to initiate recovery procedures against a bunch of large corporate loan defaulters. The NPA battle is still on. When Patel assumed office as the RBI governor in September 2016, the rupee was around the 67-mark against the US dollar. After remaining in the range of 64-66 for a few months, the rupee began to strengthen and touched a high of 63.38 on 5 January 2018. However, from March 2018 onwards, the rupee began to fall on the rise in crude prices and breached 71-mark on 31 August. On 3 September it nosedived further to a new lifetime low of 71.18 per US dollar. In year-to-date, the rupee has fallen by 11 percent – making it the worst-performing currency in Asia. The country’s forex reserves were at $367.8 billion when Patel took over. By 6 January 2017, that is in four months, the kitty reduced to a low of $359.2 billion. From that point, the reserves began to rise and touch the $400 billion mark ($400.7 billion as on 8 September 2017). It hit an all-time high of $426.1 billion on 13 April 2018 but later on it began to fall. Currently, it stands at $401.3 billion, enough to cover 10-months of imports. --With PTI inputs