India moves fast to name backer of Modi demonetisation as RBI head

By Suvashree Choudhury

MUMBAI (Reuters) - The Indian government has appointed former finance ministry official Shaktikanta Das as new governor of the Reserve Bank of India (RBI) in a move that could help to end a rift with Prime Minister Narendra Modi's administration as it seeks to ease lending curbs ahead of a general election.

The announcement came a day after Urjit Patel resigned from the post following months of fighting between the central bank and the government over restrictions on lending and the bank's surplus reserves.

A loss in three key states for Modi's ruling Bharatiya Janata Party (BJP) on Tuesday could raise pressure on the RBI to take immediate steps to boost the economy, including a transfer of the excess reserves to the government.

Das, a seasoned civil servant who retired last year as secretary of the department of economic affairs, will have a three-year term as governor of the Reserve Bank of India (RBI), effective immediately.

RBI watchers expect the 61-year-old, a key backer of Modi's controversial 2016 move to scrap high-value currency notes, known as demonetisation, to improve communication between the finance ministry in New Delhi and Mumbai-based RBI.

"Bonds and rupee should react positively following this news," said Ashish Vaidya, executive director and head of trading at DBS Bank in Mumbai.

"He is a bureaucrat and will help in improving the RBI-government relationship. We expect the RBI to take a pragmatic approach under him, be pro-growth and change its stance going ahead given that inflation has come off sharply."

Patel resigned following tension over the government's demand for the central bank to allow some bad-debt-laden public sector banks to lend more easily. The government has also pushed the RBI to hand over some of its surplus reserves to help fund the fiscal deficit.

SWIFT APPOINTMENT

Pronab Sen, former chief statistician of India and principal economic advisor to the erstwhile Planning Commission, said he was surprised by the speed of Das's appointment.

"If you have a situation where a position as important as the governor of the RBI is filled within 24 hours of the resignation of the incumbent, that will raise eyebrows," Sen told Reuters.

"People are going to say, clearly this guy had already been identified. And, the situation was created where Urjit Patel had to quit."

Das did not answer calls to his mobile phone. He had been widely seen as a contender for the top job at the RBI after the exit of former governor Raghuram Rajan in 2016.

Known to be open to different opinions and a consensus builder, Das is likely to be more inclusive in the decision-making process than his predecessor while maintaining the central bank's autonomy, according to RBI officials who have worked with him closely.

"He is a very sensible fellow and has impeccable behaviour," said a former deputy governor who worked with Das.

"He has a balanced approach and is good at consensus building. I have worked with him closely and we have had our fair share of differences. But he has always been solution centric rather than festering on those differences."

Das, who previously served on the central bank's board, came under fire for his pro-demonetisation stance and was the most vocal bureaucrat at the time Modi withdrew the high-value bank notes to fight tax evasion.

Das last year criticised the methodology of global rating agencies and sought a sovereign rating upgrade for India. Das has worked extensively in the budget division under both Modi's government and the previous coalition led by the main opposition Congress party.

While in the finance ministry, Das was involved in drafting India's Insolvency and Bankruptcy code, aimed at protecting small investors.

After the recent efforts by the Modi government to gain greater control over the central bank's regulatory powers, investors will look closely at Das' ability to hold up against such pressure.

"The incoming governor will have to work hard to prove that he has his own independent mind despite his background," said Deepak Jasani, head of retail research at Hdfc Securities.

Foreign and domestic investors earlier said any openly political appointee with little macro-economic experience, would not sit well in equity, currency and debt markets that have already sold-off following setbacks suffered by the BJP in state polls.

(Reporting by Suvashree Choudhry in MUMBAI and Krishna V Kurup in BENGALURU; Additional reporting by Neha Dasgupta, Alasdair Paul and Aditya Kalra in NEW DELHI and Rajendra Jadhav in MUMBAI; Writing by Krishna N. Das; Editing by Sanjeev Miglani and Ed Osmond)