Under the new leadership, the Reserve Bank of India (RBI) is ‘undoing’ some of the measures taken during the previous regime to allow the banking system to breathe easy. By the time Sanjay Malhotra took the reins of the central bank from Shaktikanta Das in December last year, India’s growth had slowed down to 5.6 percent, and the equity market was in a tight bear grip. The liquidity in the banking system was tight, and regulatory tightening was slowing down credit offtake. Many analysts blamed RBI’s over-zealous stance on curbing inflation for the overall economic slowdown. It is also believed that Das’ inability to navigate this situation led to his ouster from Mint Road. New governor Malhotra, who was earlier in the finance ministry heading the revenue department, came to the central bank with special instructions, it seems, from the government to push growth over inflation control. He lost no time and started the rate-cut cycle in the February monetary policy. There was a 180-degree change in the policy stance of RBI—growth over inflation control.
The bank not only made the bold move of cutting interest rates after almost five years but also followed it up by infusing sufficient liquidity through multiple steps in different phases—the latest being the announcement to infuse ₹1.87 lakh crore in March. The RBI has already injected ₹4.5 lakh crore into the banking system since the middle of January. That was just the beginning, maybe. Malhotra began undoing some other steps taken by the previous dispensation. The RBI has also started rolling back some of the ‘tightening’ measures, like reducing the risk of bank loans to non-banking financial companies by 25 percentage points. The move is expected to increase the credit flow to retail customers through NBFCs. These moves suggest, probably rightly so, that the RBI is letting the liquidity taps open to ensure more money flow to industry, retail borrowers and investors investing in capital markets for now. The central bank may also change its stance on cryptocurrencies after US President Donald Trump announced the establishment of cryptocurrency reserves. Shaktikanta Das was quite against virtual currencies. The Indian economy will do with some positive news, and the new RBI governor can kickstart the process by taking a few more measured steps.