Das leaves behind a capital legacy!

Das’s biggest achievement was steering the economy through the COVID-19 period when he had to generously provide liquidity to banks, mutual funds, and the market.

The widespread expectation that outgoing Reserve Bank Governor Shaktikanta Das will get a third term, rare in the annals of the central bank, is an indication of the achievements of the man.

During his long six-year tenure as governor, the second longest for any governor, he steered the economy through the deadly Covid waves that prevented any economic activity for nearly two years. And lo and behold, he ends his six years with three continuous years of over 7% GDP growth.

Mr. Das came in at a particularly difficult time when relations between the RBI and North Block were at their nadir. Governor Urjit Patel had protested government demands for higher dividends from the central bank, as well as pressure from political, banking, and business lobbies to go slow on the resolution of bad debts. Immediately upon his appointment, Das smoothed the rancour with amazing suavity. Das got an eminent committee, headed by former RBI Governor Bimal Jalan, to devise a formula to calculate the dividend so that it wouldn’t become a subject of future acrimony between the government and RBI. A better part of the bad loan problem of banks had been tackled under the terms of Raghuram Rajan and Urjit Patel, but Das had to tackle a fresh list of crashing NBFCs after the infra-financing company IL&FS went down. Das, with some help from the Bankruptcy Code, supervised the orderly resolution of the housing finance company DHFL. Two banks - Yes Bank and LVB - threatened to implode, but the RBI saw to their satisfactory resolution. There were more problems during Das's first term in NBFC company SREI Infra and in RBL Bank. Each was tackled by the RBI satisfactorily without any tremors to the stability of the banking system.

Das’s biggest achievement was steering the economy through the COVID-19 period when he had to generously provide liquidity to banks, mutual funds, and the market. Under him, the RBI sensibly announced targeted liquidity steps with built-in expiry dates. Handling inflation was tougher. The RBI and its MPC have a mandate to keep CPI inflation at 4%, +/- 2%, that is, between 2% and 6%. They get a grace period – CPI can be above 6% for no more than three quarters in a row. As the ninth month of 6%-plus CPI drew close, RBI under Das cleverly questioned the quality of the data collection on inflation by the statistics body in an economy locked down due to COVID-19. The RBI got a much-needed reprieve, and the inflation-targeting framework was saved by some deft statesmanship. In those trying months, Das kept the market in balance with some bold verbal intervention when he called the yield curve a "public good" and aggressively controlled its moves when needed.

Outside of monetary policy, Das also used the 3-4 years of strong growth to strengthen the banking system. Given the rapid growth of unsecured loans, he ordered higher-risk capital for these loans. He wanted to do more. Firstly, he tried to bring in global standards of financial accounting via the expected-loss-provisioning rules. Second, he tried to increase the liquid cash that banks must hold, given the dramatic rise in unstable deposits. Third, he has sought to increase the provisions to be set aside for infrastructure projects, given the past record of high defaults in this space. All these three remain in progress. Hopefully, his successor will see them through.

Besides banking and the economy, Das led the RBI through unchartered territory in digital banking by supervising the design of a central bank digital currency and using the digital payment system UPI to even lend loans. In one of his last efforts, he has left behind a nascent AI-ML-based system to track mule accounts.

Few would have thought at the start of his first term in 2018 that, with a post-graduation in history, he could have led the RBI to achieve this level of economic, financial, and technological success. History has taught him a lot.

And for all these achievements, he was voted best central banker by respected global magazines for two years in a row.

A source in the government said that Das was not given an extension because the economy and the financial system must not become too dependent on one man. This, if true, underscores Das's achievements.

But it is unlikely the government will allow Das to retire quietly just yet. Plans must already be afoot to include him in crucial advisory positions.