M. Narasimham: A life spent in service

In the eight and a half decades of the Reserve Bank of India’s (RBI) existence, it has had some extraordinary individuals helming it. However, only Maidavolu Narasimham (1927-2021) emerged from RBI’s ranks to lead the bank, even if only for a brief period. The tale of his ascendance highlights his ability to be at the right place at the right time.

In 1977, shortly after the Emergency ended, finance minister H.M. Patel summoned Narasimham, then the banking secretary in the ministry of finance, to ask him to request the then RBI governor K.R. Puri to step down. While Puri was shocked to hear this, he rebuffed Patel and Narasimham by asking to stay on until the end of April, under the advice of his guru, according to Narasimham’s autobiography. Puri left the central bank on 2 May 1977.

I.G. Patel, who was the preferred replacement as the new RBI governor, was unavailable for another few months. The government was not keen to appoint R.K. Hazari, the then senior most deputy governor, who was perceived by the Janata Party government to be close to the previous government. So, following another precedent, they appointed M. Narasimham, grandson of former President S. Radhakrishnan, as the 13th governor of the Reserve Bank.

In his early life, Narasimham studied in Cambridge, and it was on the advice of the former manager of RBI’s London branch that set him on this course. He joined RBI in 1950 as an officer in the department of research and statistics. To get the role, he was interviewed by doyens of central banking like B.K. Madan, J.J. Anjaria and P.S. Narayan Prasad, along with the then governor, Benegal Rama Rau and the RBI Board. Early on, Narasimham developed a keen interest in the banking sector, and was one of the first research officers in the department of banking research set up in RBI in 1952.

Within RBI, Narasimham joined a formidable line up of young economists, which included Anand Chandravarkar, Deena Khatkhate, V.V. Bhatt and Narasimham himself, who collectively were given the moniker of the “Gang of Four” by Khatkhate.

In 1971, soon after the independence of Bangladesh, Narasimham was sent to Dhaka to help the new Bangladesh government establish central banking operations, and from there, Narasimham was summoned to Delhi to work with the ministry of finance. On an offer to return to RBI as deputy governor, Narasimham read the tea leaves correctly and stayed at the finance ministry, only to be sent to RBI as governor a few years later. During this time, he worked closely with Manmohan Singh, M.G. Kaul and P.N. Haksar, with a particular emphasis on increasing rural credit.

An expert on banking matters, Narasimham spent the 1970s working on banking issues and is widely regarded as the father of regional rural banks. It was during his time as banking secretary that the National Commission on Agriculture issued its long report that ultimately led to the establishment of the National Bank for Agricultural and Rural Development.

Narasimham’s role in securing India’s external position after the devastating drought of 1979 was paramount. He spent several years in Washington DC, serving as India’s executive director, first to the World Bank, and then the International Monetary Fund (IMF). His role in arranging the SDR5bn loan (the largest advance the IMF had made) in 1981 was significant, as he navigated a relatively hostile US Treasury and pushback from Indian politicians to secure India’s financing needs. Narasimham later came back to India from the Fund as the economic affairs secretary, working with FM Pranab Mukherjee and was quickly elevated as the finance secretary.

Despite his storied career, M. Narasimham is perhaps most recognized for his prominent role in liberalizing India’s banking and financial system. Indeed, his two committee reports, in 1991 and 1998, still influence India’s financial liberalization, and several suggestions made in his reports continue to be advocated as the right way forward.

In the first committee report, Narasimham argued strongly for an end to the dual control over the banking system, and advocated that RBI be put firmly in command. His recommendations also included a dramatic reduction in the statutory liquidity ratio (SLR), saying that it should be cut to 25% from 38.5% in phases, abolishing branch licensing, and opening up the banking system to private and foreign players.

Narasimham was asked in 1998 to lead another committee on banking reforms, where he backed the consolidation of public sector banks to create mega-institutions, and reducing government ownership to 33%, a number that Y.V. Reddy’s autobiography recalls was picked by Narasimham as a compromise between members who wanted it to be 26% and those who wanted it to be 51%. This ability to find a middle path helped him to push through large reforms without ruffling too many feathers.

M. Narasimham’s reports and recommendations have continued to guide India’s banking reforms for the past three decades, and are likely to remain the cornerstone on which Indian banking’s modern system stands upon in coming years.

Rahul Bajoria is chief India economist for Barclays, and the author of ‘The Story of the Reserve Bank of India.’ These are the author’s personal views.