Rangarajan: force behind financial sector reforms

Rangarajan, a Master’s from Madras University and Doctorate in Economics from the University of Pennsylvania, US, donned the mantle at the RBI headquarters, when the Indian financial sector was rocked by the multi-crore securities scam that shook the entire banking sector. His earlier stint as a deputy governor of the RBI in 1982 after working as a professor at the Indian Institute of Management, Ahmedabad, helped him to steer the fortunes of the financial sector in the last five years.

As Rangarajan himself told The Indian Express, “Looking back, I think my major contributions was towards giving a definite shape to the monetary policy and financial sector reforms. The monetary policy has acquired a certain quality. …and character during this period. The re-introduction of ad hoc bills was a good step and monetised the system. I think falling inflation rates in the recent times is an indication of the success of the policy that we have been pursuing.”

He has been able to clean up the Augean stables of the banking sector — albeit with some drawbacks here and there. Hailed as the pioneer of financial sector reforms as recommended by the Narasimham Committee report, the outgoing governor has many achievements to his credits. He was given two extensions by the government to complete the work initiated by him.

The latest of his reform package was the birth of new generation private sector banks and the local area banks. At the same time, he strengthened the banking sector by introducing prudential lending norms, capital adeqaucy norms and strengthening the bank supervisory role.

It was Rangarajan who tightened the grip over the money supply even at the cost of industrial growth. While inflationary pressure was mounting during his initial years and crossed double digits, the governor made all out efforts to bring inflation down to record levels of below four per cent. The outgoing governor was also the major force behind the whopping foreign exchange reserves of $ 30 billion.

As he removed various restrictions which protected the Indian currency for years from external pressure, the rupee witnessed steep devaluation during his tenure. Though, he managed to shield the rupee from the turmoil witnessed next door in the South East Asia. Unfortunately, he also encountered several scams that rocked the banking sector. The banking sector, which has been limping back to normalcy due to the securities scam, was rocked once again by the M S Shoes scam, followed by the urea scam, the Indian Bank debacle and the CRB scam. To some extent the freedom given to various non-banking finance companies (NBFCs) in raising public money had been misused.

“I had tried to give a new direction has been the financial sector reforms. But I do think more has to be done. The financial sector reforms is still an unfinished agenda. The policy will have to respond to circumstances… I think in the case of financial sector reforms the next phase should emphasise on organisations effectiveness of banks and insitutions,” Rangarajan says. Now Bimal Jalan will have to complete this unfinished agenda.