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Indian Central Bank chief Rajan to step down in September
June 19, 2016, 5:35 am

File Photo: India Central Bank Chief Raghuram Rajan (1st R), at the Reserve Bank of India headquarters in Mumbai, India [Xinhua]

File Photo: India Central Bank Chief Raghuram Rajan (1st R), at the Reserve Bank of India headquarters in Mumbai, India [Xinhua]

Indian Central Bank governor Raghuram Rajan’s announcement, that he would step down when his term ends later this year, has raised risks for investors in Asia’s third-largest economy.

Indian Finance Minister Arun Jaitley said the government would name a successor soon.

Rajan’s term ends on September 4. He made the announcement of stepping down in a letter to the central bank’s staff published on Saturday.

Top officials and economists were quick to react.

The ruling Bharatiya Janata Party ally and member of the upper house of the Indian Parliament, Subramaniam Swamy lauded the Indian Prime Minister for the move.

“My admiration for Namo has gone up hugely. Media, industrialists, and international bureaucrats piled on him for R3, but he did not bend.” Swamy tweeted.

Swamy was referring to Prime Minister Modi as “Namo” and the Central Bank Chief Rajan as “R3”.

Earlier this year in an interview with The Wall Street Journal, when asked whether he supported the reappointment of Rajan as governor, Modi said: “I don’t think this administrative subject can be an issue for the media. And that issue is only in September, not now.”

Modi’s ally Swamy, in a letter to the Prime Minister earlier this year, had questioned Rajan’s allegiance to India, saying his time at the University of Chicago and the IMF make him unfit to run India’s central bank.

On Saturday, Alberto Gallo, head of macro strategies at Algebris Investments Ltd. in the UK, said this was “a great loss for India”.

Investors credit Rajan with taming one of Asia’s fastest inflation rates, stabilizing the rupee and moving to clean up 8 trillion rupees ($120 billion) of stressed assets in the financial system.

Rajan has been a key advocate of fiscal discipline and has called macroeconomic stability India’s “single most important strength” in a time of global market turmoil.

Rajan has been vocal on the country’s bad loan problem.

India’s banks are saddled with about $120 billion in stressed loans, or 11.5 per cent of the total, with 27 public sector banks accounting for the lion’s share.

Surging bad debt and higher provisions to cover for them caused 10 Indian state-owned lenders to report combined losses of $2.3 billion for the March quarter.

Central bank Governor Raghuram Rajan has continually warned about lenders’ hidden bad debt, and started the audit of banks’ nonperforming loans on Oct. 1 in a bid to improve disclosures of soured credit and force banks to set aside more cash to cover potential write-offs.

Among those in the list of Rajan’s possible successors, as cited by Indian media reports, include Arundhati Bhattacharya, Chairperson of India’s largest lender, State Bank of India, Arvind Subramaniam, chief economic advisor to the government of India and Upendra Kumar Sinha, chairman of the Indian market regulator SEBI.

 

TBP