Reserve player

CENTRAL banks need the confidence of investors to function well, so questions about their leadership and independence are seldom welcome. On August 20th Narendra Modi, India’s prime minister, belatedly appointed a new head of the Reserve Bank of India (RBI), nine weeks after Raghuram Rajan, the incumbent, surprised everyone by announcing he was stepping down. The new man, Urjit Patel, was an understudy to Mr Rajan—prompting plenty to wonder why the original cast member was, in effect, forced out.

Beyond the usual way stations for central bankers—Yale, Oxford, a period at the IMF—Mr Patel was once a management consultant and an executive at Reliance Industries, a group headed by Mukesh Ambani, India’s richest man. He has been a deputy governor of the RBI since 2013.

India’s newish inflation-targeting framework, which has been successful in stemming rising prices (helped by outside factors such as falling oil prices), is as much his as Mr Rajan’s. So is the upcoming arrangement whereby interest rates will be set by a panel comprising government and RBI appointees, rather than the governor alone. Though he lacks the stature of Mr Rajan, a former IMF chief economist, his hawkish credentials will help fend off calls for lower rates from ministers and industrialists.

His appointment should alleviate fears that Mr Rajan’s untimely exit—all recent RBI governors have served more than a single three-year term—was a ploy by Mr Modi to hobble the central bank’s independence. Insiders suspect that it was Mr Rajan’s sideline as a public intellectual, pontificating on matters far removed from economics, that undermined him in Mr Modi’s eyes. Mr Patel is unlikely to stray so far from his bailiwick.

If monetary policy is expected to remain unchanged, the regulation of banks, the RBI’s other main remit, is a more open question. The state-owned lenders, some 70% of the industry, are struggling with dud loans they extended to industry and infrastructure firms five years ago. Mr Rajan had forced the banks to recognise the holes in their balance-sheets, indirectly taking on the tycoons who had benefited from the forbearance of bank bosses.

Mr Patel’s views on bank regulation are not known. Some of the sensible stuff enacted in recent years, such as making it easier for newcomers to obtain banking licences, will surely stay in place. But whether Mr Patel keeps up the same pressure on the banks will be a big test in the early stages of his three-year mandate. Many hope the new governor will be a clone of the man he replaces—while wondering why Mr Modi didn’t just stick with the original.