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    A new deputy governor for RBI

    A new deputy governor for RBI

    A new deputy governor for RBI
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    By Latha Venkatesh   IST (Updated)

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    Gupta has been analyzing the Indian banking sector for 20 years, first in CLSA and now in Credit Suisse.

    Rarely has the post of Reserve Bank deputy governor been so keenly contested with so many outstanding candidates. Of the nine people interviewed on Friday, five are bankers, three are IAS officers and one is a foreign banker.
    The IAS officers first: Dr KP Krishnan, secretary, Skill Development in the HRD ministry has had a long association with financial policy making. He was earlier additional secretary, Department of Economic Affairs, Ministry of Finance  and  secretary, Prime Minister’s Economic Advisory Council.
    During this stint, Dr. Krishnan was closely involved with many financial reforms  including setting up of the Financial Sector Legislative Reforms Commission (FSLRC).
    The inflation targeting mandate of the RBI and creation of the independent public debt management office, etc. are some examples of the direct outcome of his work in the finance ministry.
    Nandan Nilekani mentions him as instrumental in the setting up of the UIDAI.
    The other IAS candidate, Dr T V Somanathan,  principal secretary in the planning & development department, Tamil Nadu, was until recently joint secretary in the PMO. He was earlier director at the World Bank. His doctorate in economics was on the subject of commodity and financial derivatives. He is a chartered accountant, chartered management accountant and chartered secretary. He has co-authored a book on derivatives and has published nearly a hundred papers and articles. The corridors of power say PM Modi relied on him for several policy matters relating to economic and financial policies. His transfer to his home state last year was a matter of much surprise.
    The third IAS candidate Yaduvendra Mathur, additional secretary in the Niti Aaayog was earlier CMD at Exim Bank. He is from the Rajasthan cadre and has held many key positions there including that of chairman of the Rajasthan discom, an experience that can make him invaluable in the current scenario.
    The five bankers obviously bring the most relevant experience to the post. Until recently, this post in RBI was reserved only for bankers from the public sector, but this requirement was changed a few years ago allowing anyone with extensive experience in banking  and finance at senior levels to apply.
    B Sriram and PK Gupta are both managing directors at State Bank of India. Sources say Vinod Rai’s Bank Board Bureau, while selecting Rajnish Kumar to succeed Arundhati Bhattacharya, strongly recommended B Sriram ( also a contender for the SBI Chairman’s post). Being at the helm of SBI, Sriram and Gupta bring vast experience in handling the banking sector, which is in a seriously difficult spot today.
    M K Jain, currently the MD of IDBI is known to be well liked by the government for his handling of Indian Bank which until recently was one of the few PSU banks with low single digit NPAs. (The latest result of Indian Bank was however not flattering).
    Like Sriram, Jain also brings with him the ability to take an encyclopedic view of banking and financial issues. Hence, an ability to be a bridge between the banking sector and the regulator.
    The other two contestants for the post are executive directors at UCO Bank Charan Singh and G Subramania Iyer. Iyer retired on April 30.
    The private sector banker Ashish Gupta is perhaps the most interesting. Gupta heads equity research at Credit Suisse and has the distinction of spotting India’s bad loan problem as early as in August 2012 when he published his eye-opening work “House of Debt” that detailed how seriously Indian banks were exposed to overleveraged Indian conglomerates.
    Gupta has since been updating his work on corporate financials every quarter and this has become the most authoritative source for both government and RBI in understanding India’s bad debt problem.
    Gupta has been analyzing the Indian banking sector for 20 years, first in CLSA and now in Credit Suisse.
    Interestingly, he has practical banking experience having started his career in IDBI in 1994 before moving to CLSA in 1998. Most banking sector watchers exclaim how “young” Gupta is, though, if appointed, he would be a year older to deputy governor Viral Acharya.
    Much can be said in favour of most of the applicants. The public sector bankers obviously bring invaluable experience. Some have argued they may be conflicted when the key problem is resolution of bad loans. But after the RBI’s ground breaking February circular that tighten bad loan resolution, the “conflict” argument probably doesn’t hold.
    The IAS officers, besides their personal achievements in finance can be an important bridge between government and RBI. A top RBI official of the 1990s and 2000s once told me that when Raghuram Rajan had shown interest in being RBI governor, PM Manmohan Singh had insisted he spend a year or two in Delhi before moving to Mint Street, so that he understood how government worked. Considering that Governor Urjit Patel and Viral Acharya don’t have direct experience in government, the IAS officers may provide that invaluable link to the old boys’ network of IAS officers.
    Ashish Gupta represents change. But the question is: Is the government prepared for a change? If it were, why did it not go with the winner of the previous round of interviews for the same post, Neeraj Gambhir of Nomura? Gambhir may probably still  be a contender having been interviewed by more or less a similar committee.
    Vastly read and erudite Gambhir brings over twenty years of experience in banking and bond markets first at ICICI and then at Nomura. The positive conclusion from the long list of candidates is that India and RBI are lucky to have such a wealth of talent to choose from.
    The trouble is the winner is not entering a bed of roses. The Indian banking system is decades behind the global financial system. Since the eighties, banking in advanced economies has raced ahead to a point where bond markets and bank loans form a continuum, in an ecosystem of sophisticated hedges and derivative instruments.
    Indian banking bypassed this advancement, thanks to the nationalization of banks. In addition, today the payment system too is undergoing its so called ”whatsapp” moment. Indian banking, especially public sector banks, crippled by bad loans, are at the moment unable to handle these cutting edge and transformational developments.
    The new DG in Mint Street along with the other DGs and the governor have to shoulder the responsibility of envisioning a new path for the public sector banks. Unlike Air India or MTNL , public sector banks can’t be ignored to float like jetsam, in the economy’s backwaters.  They have to be transformed attitudinally, and strengthened financially. The incoming DG also needs to come with “seene mein aag aur dimaag mein thandak” (fire in the belly but a cool mind). Luckily many of the applicants seem to fit the bill.
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