RBI Governor Raghuram Rajan's First Year: Actions and Impact

Raghuram Rajan, 51,  took over as the governor of the Reserve Bank of India (RBI) on 4 September, 2013. Within a couple of months of his appointment the slipping rupee had stabilised as the central bank offered concessional interest rates to raise the foreign currency deposits, which helped fetch $34 billion via oil marketing companies and other large-scale industries .

In addition to that, inflation rate has come down and the economic output for April to June quarter has been the strongest in more than two years. BSE Sensex and NSE Nifty have crossed over 27k and 8k, respectively, reports Business Standard.

Here are the five important monetary policies taken up by RBI to improve financial stability in India through various steps taken under Rajan's precedence.

1. Rule-based monetary policy

Action: To tackle inflation, Rajan set up the Urjit Patel committee that said RBI should be accountable and answerable.

Impact: Retail inflation declined.

2. More banks, less licences

Action: Rajan followed the former RBI governor's idea of granting separate bank licences instead of universal bank licence.

Impact: Commercial banks reduced from 153 in 2013 to 146 in March 146. However, sub branches of all commercial banks increased from 1, 04,647 in 2013 to 1, 15,822 in current fiscal year. The central bank offered licences financial institutions such as to IDFC and Bandhan Financial Services.

3. Stock markets

Action: Overseas investors have been mandated to invest in government bills rather than treasury bills on maturity. Moreover, RBI also increased the FII limit in government bonds and inflation-indexed bonds to give better returns to investors.

Impact: FII limit helped government borrowing procedure and reduced volatility in yields.

4. Financial inclusion

Action: Nachiket Mor, a board member of RBI planned that each Indian above the age of 18 years should have a full-service, safe and secure electronic bank account by January 2016.

Impact: The central bank has already issued draft norms on payment banks. Following this step, mobile service providers, retailers and postal department has also showed keen interest in this idea.

5. Bad Loans

Action: The Reserve bank of India directed Asset Reconstruction Companies to invest 10 percent more in security receipts issued by them. This regulation has been formulated by RBI to consolidate the sale of bad loans in the banking system. Earlier, it was compulsory to invest at least five percent of the security receipts.

Impact: As RBI tightened regulatory norms for Asset Reconstruction firms, banks have become alert and the process has become more accountable.