New RBI Chief Increases Market Confidence in India

September 9, 2013 Posted by India Briefing Reading Time: 2 minutes

Sept. 9 – India’s new central bank chief, Raghuram Rajan, has begun taking steps to reform the rupee. On becoming the new chief, Rajan made a promise to implement sweeping reforms.

The markets reacted positively to Rajan’s appointment – stock markets and the rupee both saw an increase in their value, with banks having seen the biggest increase in value.

Rajan has stated that the central bank’s main role is to ensure that confidence in India’s currency remains high. He further promised to ensure “low and stable levels of inflation” and a fall in poverty.

Among the measures to be implemented are that banks will be able to open new domestic branches without the Reserve Bank of India’s (RBI) permission. New banking licenses will also be issued by January. In addition, inflation-indexed savings certificates will be issued and financial services for the poor will be encouraged, such as improving mobile banking. Finally, the system for banks to recover bad loans will be improved by speeding the work of debt-recovery tribunals and asset-reconstruction companies.

Further measures taken by the RBI include: two swap windows where banks can exchange their NRI (non-resident Indian) deposits, the introduction of a concessional rate on overseas borrowing that will last till November 30, and doubling the amount that Indian banks can borrow overseas.

Further positive signs for the Indian economy were seen in India’s parliament where two bills were passed, including a pension reform bill and a land acquisition bill.

Rashesh Shah, chairman of Edelweiss Financial Services Ltd, believes that with the appointment of Rajan investor confidence will return and the growth of India will continue.

India still faces a tough battle, with a record current account deficit and a currency that has lost a quarter of its value against the U.S. dollar. However, the current market looks positive and the new RBI chief seems determined to implement real change.

“Some of the actions I take will not be popular,” stated Rajan. “[But] the governorship of the central bank is not meant to win one votes of Facebook ‘likes’.”

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