Sanjay Malhotra Appointed as RBI’s New Governor

Why in News?

Sanjay Malhotra has been appointed as the new Governor of the Reserve Bank of India (RBI). The announcement was made by the central government on December 9, 2024. Malhotra will take over from Shaktikanta Das, who held the position for the past six years.

About New RBI Governor Sanjay Malhotra:

• Sanjay Malhotra has been appointed as the 26th Governor of the Reserve Bank of India (RBI), with a three-year tenure starting Wednesday.
• He was born on February 14, 1968, from Bikaner, Rajasthan.
• Sanjay Malhotra is from Rajasthan Cadre and an IAS Officer: 1990-batch.
• Malhotra completed his B.Tech in Computer Science Engineering from IIT Kanpur and holds a Master’s degree in Public Policy from Princeton University, USA.
• With a career spanning over 33 years, he has gained extensive experience across diverse sectors such as finance, taxation, power, information technology, and mining.
• He served as the Revenue Secretary in the Ministry of Finance.
• He was also an ex-officio Secretary to the GST Council, contributing to taxation policy frameworks.
• He previously held key roles as Chairman and MD of Rural Electrification Corporation Limited and ACS of the Revenue Department in Rajasthan.
• His contributions in direct and indirect tax policy development, rural electrification, and public financial management.

Introduction of RBI Governor:

• The Reserve Bank of India (RBI) was  nationalized in the Reserve Bank (Transfer of Public Ownership Act, 1948) 1949.
• The institution serves as India’s central bank, overseeing monetary policy, currency issuance, and financial stability. 
• The Governor of the Reserve Bank of India (RBI) is the chief executive officer of India’s central bank, responsible for managing the country’s monetary policy and financial stability. 
• The RBI Governor leads efforts and makes decisions that impact inflation control, exchange rates, and liquidity management. 
• The Governor’s signature appears on all currency notes issued by the RBI. 
• Since the bank’s establishment in 1935, 25 RBI Governors have led the institution.

Appointment of RBI Governor:

The appointment process of RBI Governor ensures the selection of a highly competent individual to manage the central bank’s critical functions.

• Shortlisting by FSRASC:
  The Financial Sector Regulatory Appointment Search Committee (FSRASC) is responsible for preparing a list of eligible candidates for the position.
  • The committee includes the Cabinet Secretary, the current RBI Governor, the Secretary of Financial Services, and two independent members.
  • The FSRASC evaluates potential candidates based on expertise, experience, and their ability to manage the central bank.
• Interview and Recommendations: Shortlisted candidates undergo interviews where their suitability for the position is assessed. The committee then forwards their recommendations to the Cabinet Committee on Appointments for further review.
• Final Appointment: The Cabinet Committee makes the final decision. The committee confirms the selection and formally appoints the individual to the post.

Eligibility Criteria for RBI Governor:

• Educational Qualifications: To be eligible for the position of RBI Governor, candidates must have a graduate or postgraduate degree or be a Chartered Accountant.
• Relevant Experience: The candidate must have prior experience in one of the following fields:
• Working with prestigious financial organizations like the IMF or World Bank.
• Serving as the Chairman or General Manager of any bank.
• Holding a key position in a recognized financial or banking institution.
• Experience in the Finance Ministry of the Indian Government.

Tenure of RBI Governor:

• Standard Tenure: The typical tenure of the RBI Governor is three years, as initially set by the central government.
• Extension Possibility: The term can be extended for an additional two years at the government’s discretion, depending on the need and the individual’s performance.
• Discretionary Authority: The central government has the authority to extend the Governor’s tenure beyond the original term if it is deemed necessary for maintaining economic stability or continuity in leadership.
• Appointment Flexibility: While the typical tenure is three years, the central government can choose to shorten or extend the Governor’s term as per the needs of the economy.

Role and Responsibilities of the RBI Governor:

• Monetary Policy Oversight:
  • The RBI Governor plays a central role in steering the country’s monetary policy by heading the Monetary Policy Committee (MPC). 
  • This committee is responsible for deciding interest rates and taking necessary actions to control inflation and stabilize the economy. 
  • The Governor ensures that the decisions made by the MPC align with national economic goals, such as price stability and sustainable growth.
• Currency Issuance:
  • The RBI Governor oversees the issuance of currency notes, ensuring that all notes are legally valid and properly circulated. 
  • This responsibility involves ensuring the security and integrity of the currency system, overseeing counterfeiting prevention, and managing the overall circulation to meet the economy’s demand.
• Banking Sector Supervision:
  • The Governor is tasked with regulating and supervising scheduled commercial banks and other financial institutions to ensure financial stability. 
  • By monitoring these institutions, the RBI Governor ensures that they operate within the financial regulatory framework and meet the required solvency standards. 
• Foreign Exchange Management:
  • Under the Foreign Exchange Management Act (FEMA), the RBI Governor manages policies related to foreign exchange to maintain a stable external value of the Indian Rupee. 
  • This includes overseeing India’s foreign exchange reserves, handling exchange rate policies, and managing interventions in the foreign exchange market.
• Priority Sector Lending: The RBI Governor ensures the implementation of policies aimed at directing credit flow to priority sectors such as agriculture, small and medium enterprises (SMEs), and housing. By promoting lending in these sectors.
• Global Representation: The RBI Governor represents India in several international financial forums and discussions. This includes participating in global economic discussions, engaging with organizations like the International Monetary Fund (IMF), the World Bank, and the Bank for International Settlements (BIS). 

Monetary Policy Committee (MPC):

• Established under the RBI Act to manage inflation targeting and monetary policy decisions.
• Structure:
• Six members: 
  • 3 from the RBI (including RBI Governor) 
  • 3 external members.
  • Tenure four-year term
• Functions:
  • Setting the Repo Rate: The primary function of the MPC is to decide the repo rate, which is the interest rate at which commercial banks borrow money from the Reserve Bank of India (RBI). 
  • Inflation Targeting: The MPC is tasked with maintaining price stability in the economy.
  • Economic Analysis: The MPC regularly analyzes economic conditions, including inflation trends, GDP growth, and global economic developments.
  • Policy Formulation: Based on its analysis, the MPC formulates monetary policy decisions, including changes to the repo rate, liquidity measures, and other policy instruments.
  • Meets at least four times a year.

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