On August 28, 2013, the Indian rupee plummeted to a record low of INR 68.80 against the US dollar as India's economy grew at its slowest pace in four years. During this economic crisis, Raghuram Rajan was appointed as the 23rd governor of RBI on September 4, 2013. As the new governor, Rajan took steps to stem the rupee's fall and pursued banking sector reforms. He raised interest rates twice in the first two months to control inflation. Rajan aimed to tackle India's serious economic problems through five pillars of financial reform.

2. Raghuram Rajan

3. On August 28, 2013, the value of the Indian rupee
vis-à-vis the US dollar plummeted to a record low of
INR68.80.
India’s economy grew at its slowest in the previous
four years and recorded a growth rate of 4.4%
A t a time when India was facing its worst financial
and economic crisis in decades Raghuram Rajan was
appointed as the 23rd governor of the RBI on
September 04, 2013, for a period of three years

4. Analyze the history of the Reserve Bank of
India (RBI) and its governors.
RBI.
Study the agenda for RBI governor
Raghuram Rajan and the monetary policy
stance adopted by him.

5. In 1926 royal commission on Indian currency established an central
bank called as RESERVE BANK OF INDIA
On April 1, 1935 RBI commenced it operations with Sir Osborne Smith
as its first Governor
In 1938 first RBI notes were published
Its main objective is to Secure Monetary stability
It operates the credit and currency system of the country to its advantage
In 2008 financial stability was included as an important objective of the
monetary policy

6. The major event in the history of RBI was its nationalization
in the year 1949
In 1951 first five year plan was launched. The State Bank Of
India was established in the year 1954.
In 1960 a rule for compulsory amalgamation was passed to
maintain the banking sector . Nearly 200 banks were
liquidated .CRR was used first in 1962.
In 1970 to control inflation SLR was increased for the first
time from 25% to 28%.In 1975 RBI set up the first RRB.

7. In 1980 the Monetary policy was amended many times based on
the recommendations made by the Chakravathy Committee
(suggested price stability )and Vaghul Committee(introduced
money market reforms)
In 1990 there was external payment crisis which lead to the
devaluation of currency. In 1991 Narashimam Committee
suggested to decrease the CRR and to give more emphasis on
Open Market Operations.

8. Bimal Jalan 1997-2003 was appointed at the time when the
Asian Financial crisis was at its peak . He is well known for his
crisis management skills
Y.V Reddy 2003-2008 was appointed in relatively stable time.
He maintained a tight monetary policy throughout. He was
against the ideas of the Finance Minister of India
P.Chidhambaram .
Dr.Duvvuri Subbarao 2008-20013 took post when the global
economic system had almost collapsed due to the Great
Depression. He was against P.Chidhambaram’s idea of
decreasing the interest rate for better economic development.

9. Bimal Jalan
(1997-2003)
Y.V Reddy
(2003-2008)

10. Dr. Duvvuri Subbarao
( 2008-20013)

11.  He is appointed as the 23rd governor of RBI
on September 4th 2013.He became the
youngest ever chief economist at IMF at the
age of 40 and served during 2003-2006.
 As soon as he became the governor of RBI,
he took many steps to stop the rupee fall.
 Apart from steaming the rupee fall, banking
sector reforms was also high on Rajan’s list
of priorities.
 He stated that “Changing the financial sector
will help India grow.”

12.  In the first two months, Rajan raised the central banks
main lending rate twice two control Inflation .
 According to analysts Rajan was following in the steps
of Subbarao,who has raised the REPO rate a record of
13 times from 4.75% to 8.5% during March 2010 and
October 2011.

13.  Some economists opined that the rate hikes and
slowed down the economic growth of the country but
not the inflation and it remained stubborn.
However defending the interest rates hike Rajan
opined “CPI is at a worrisome number at 10% and
beyond. I do not think there is any elbow room to give
any kind of relaxation as far as interest rates are
concerned.”

14.  According to RBI, India’s widening current deficit
which has the main reason for the rupee’s decline was
estimated to come down to 56 Billion USD(3% of the
GDP) for the fiscal year 2013-14,when compared to a
deficit of 88 Billoin USD(4.8% of GDP) in 2012.
 Analysts opined that India which imported 79% of its
oil imports would continue to face a high current
account deficits and as result the rupee was likely to
continue weakening over a long term.

15.  According to Wharton “ In a fiscal year 2012-13 India’s
oil imports were 2.6 Million Barrels Per Day (bpd)
which pushed oil imports bill to 109 Billion USD.”
 The gold import bill for the same year stood at 47
Billion USD, less than half of the Indian Oil imports
bill.

16.  There was a lot of expectation that Rajan would tackle
the most serious econimic problems in more than two
decades.
 In this regard he devised five pillar of financial reform
which were :
 Clarifing and strengthning the monetory policy
framework.
 Reforming the banking system.

17.  Liberalising indian markets.
 Increasing financial inclusion.
 Sorting out financially distressd financial institutions.
 Rajans Five Pillars were compared to Abenomics.The
term coined for Japanese prime minister Shinzo Abe’s
economic policies.

18. C.RANGA
RAJAN
(DEC 1972-77)
BIMAL
JALAN
(NOV 1972-
2003)
Y V REDDY
(SEP 2003-08)
D.SUBBARA
O
(SEP 2008-13)
AVERAGE
INFLATION
7.79% 4.53% 5.85% 7.23%
GDP GROWTH 5.49% 5.4% 7.9% 7.86%
EXCHANGE
RATE
-9.16% -5.67% -0.68% -8.35%

19.  Reduced short term interest rates by withdrawing
earlier exceptional measures to reduce ForEx volatility.
 Completely freed branch licensing.
 Talked about permitting banks to acquire local lenders
with riders.
 Attracted 12 Billion USD via swap facility of dollar
deposits.
 Relaxed ForEx hedging limits for exporters/importers
to rebook cancelled forward contracts.

20.  Foreign Banks setting up wholly owned subsidiaries to
be given new national treatment. The RBI to issue this
scheme by mid November 2013.
 Initial minimum paid up voting equity capital or net
worth for wholly owned foreign bank’s subsidiary to be
5 billion USD.
 More durable way for banks to mitigate mismatch in
demand and supply of cash is to set up efforts to
mobilise deposits.

21.  Draft report on BASEL III capital framework likely by
November 2013.
 The RBI to issue updated guidelines on stress testing for
banks by the end of November 13’.
 Draft of proposed framework for domestic systematically
important bank by Nov 13’.
 First meeting of high level advisory committee on new
banks licences was on 1 November 2013.

22.  To issue 10 year retail inflation-indexed securities in
November/December 2013.
 To launch 10 year interest rate futures contracts by end
December 2013.
 To allow partial credit enhancement for corporate
bonds by bank via credit liquidity facilities.

23.  To issue final guidelines on unheeded foreign currency
exposures by end December 2013.
 To close special repo Window for mutual funds with
immediate effect.