Shaktikanta Das: The Governor Who Transformed RBI’s Lending Playbook

Shaktikanta Das, the 25th Governor of the Reserve Bank of India (RBI), emerged as one of the most consequential central bankers in recent Indian history.

Since stepping into office in December 2018, following the unexpected resignation of his predecessor Urjit Patel, Das displayed exceptional acumen in steering monetary policy through turbulent times.

His tenure was defined by the strategic and dynamic use of the repo rate—RBI's critical instrument to regulate liquidity and credit—ensuring stability while adapting to India's evolving economic challenges.

When Das assumed charge as RBI Governor, the Indian economy was navigating stormy waters, reeling from the dual shocks of demonetisation and GST implementation. Within months of his appointment, the RBI began cutting the repo rate, signalling a dovish stance aimed at revitalising demand.

By October 2019, the central bank had slashed the repo rate by 135 basis points, bringing it down to 5.15 per cent, creating an enabling environment for borrowing, investment, and demand revival, and setting the stage for economic recovery.

The onset of the COVID-19 pandemic in 2020 tested Das's mettle like never before. As the pandemic triggered an unprecedented economic contraction, the Monetary Policy Committee (MPC) cut the repo rate to a historic low of 4 per cent in May 2020, providing much-needed relief to businesses and households.

However, what set Das apart was his nuanced approach to liquidity management. Understanding that rate cuts alone couldn’t address the crisis, he introduced bold measures like targeted long-term repo operations (TLTROs) and a moratorium on loan repayments.

A standout achievement of his tenure was addressing a long-standing issue—ensuring the transmission of repo rate cuts to borrowers. Historically, banks were sluggish in passing on the benefits of lower rates, limiting the impact of monetary easing.

Das broke new ground in October 2019 by nudging banks to link their lending rates to external benchmarks like the repo rate. By aligning lending rates more closely with the central bank’s policy stance, Das not only enhanced the efficacy of rate cuts but also brought greater transparency and predictability to the borrowing process.

While Das’s accommodative stance during the pandemic earned widespread praise, his adaptability shone as inflation pressures mounted in 2022.

Throughout his tenure, Das prioritised the health of India’s banking sector. His leadership coincided with a dramatic decline in bad loans in the banking system—gross non-performing assets fell from 10.8 per cent in 2018 to just 2.8 per cent by March 2024.

A defining feature of Das’s tenure as RBI Governor was his transparent and accessible communication style. Unlike some of his predecessors, Das prioritized clarity and openness, ensuring that stakeholders—ranging from policymakers to the public—clearly understood the RBI’s actions and intentions.

All the while, he maintained harmony between Mint Street and North Block.

Despite widespread acclaim for his leadership, Das faced criticism over the RBI’s prolonged pause on interest rates recently, with many arguing that it contributed to a slowdown in growth.

Last Friday, the RBI maintained the repo rate at 6.5 per cent for the 11th consecutive bi-monthly review, even as inflation surged to a 14-month high of 6.2 per cent in October and GDP growth dipped to a seven-quarter low of 5.4 per cent in Q2 2024.

On his final day at the helm of Mint Street, Das addressed these concerns head-on, asserting that growth dynamics are shaped by a “multiplicity of factors” beyond the repo rate alone. Defending the RBI's “tight” monetary policy, he emphasized that decisions were made with a forward-looking perspective, balancing immediate challenges with long-term stability.

“Our effort has been to make the monetary policy as appropriate as possible, keeping in mind the prevailing conditions and, more importantly, the overall outlook on what lies ahead. Beyond that, the assessment of our policy is for others to make, but I think within the RBI, we are convinced that what we have done was the best option available under these circumstances,” he noted.

As Sanjay Malhotra assumes office as the 26th Governor of the Reserve Bank of India on December 11, all eyes turn to his leadership in shaping the central bank’s path forward.

With the first Monetary Policy Committee meeting of the new year on the horizon, there is growing clamor for the RBI to ease policy rates to support growth.