Urjit Patel succeeds Raghuram Rajan as new RBI governor

Mumbai: Urjit Patel has been named as the 24th governor of the Reserve Bank of India.

Patel will take over from Raghuram Rajan when the latter leaves office after his term ends on 4 September.

The choice of Patel will ensure continuity at the RBI since he has been the deputy governor in charge of monetary policy.

Patel has been instrumental in putting in place the flexible inflation targeting framework that the central bank is now following. Patel has also been responsible in making a number of other changes at the RBI including a revamp of HR processes.

Also read: Who is Urjit Patel?

In a note released on 18 June, Rajan informed the staff of the Reserve Bank that he will return to academia after his term ends in September.

In his message, put out on the central bank’s website, Rajan had said that he is proud of what has been accomplished over the last three years at the RBI and recognizes that some of what has been initiated remains work in progress.

“While I was open to seeing these developments through, on due reflection, and after consultation with the government, I want to share with you that I will be returning to academia when my term as Governor ends on September 4, 2016. I will, of course, always be available to serve my country when needed,” Rajan had written.

Also read: Urjit Patel: An agenda of continuity

Over his short three-year tenure, Rajan undertook some crucial changes including putting in a place a flexible inflation targeting framework for the RBI to follow. The framework asks the RBI to maintain inflation at close to 4% (+/-2%) in the medium. With Rajan’s exit, markets have been uncertain about whether these inflation targets would be retained.

In anticipation of an easier monetary policy stance, bond prices have rallied and bond yields have fallen.

Since Rajan announced his exit, the benchmark 10-year bond yield has fallen sharply to 7.10%, levels last seen in 2009. One basis point is one-hundredth of a percentage point.

The other area of focus for Rajan in recent months has been the clean up of bank balance sheets.

Also read: Raghuram Rajan’s performance appraisal

Last year, Rajan initiated a sector wide asset quality review which forced banks to clean up their balance sheets and led to a surge in reported bad loans.

Since Patel is part of the core team at the RBI, it is likely that he will continue to follow these polices adopted under Rajan.

“The appointment has been made based on the recommendation of the Financial Sector Regulatory Appointment Search Committee (FSRASC) headed by Cabinet Secretary P.K. Sinha. The Committee had met twice to discuss all the possible names that can be considered for this assignment and had submitted a short panel of names to the ACC (appointment committee of cabinet),” said a press note from the government.