Viral Acharya: The elusive outlier in the middle of the govt-RBI spat

Viral Acharya | Illustration: Ajay Mohanty
In his maiden speech as Reserve Bank of India deputy governor, Viral Acharya proposed to create two asset management companies -- one private and another public -- to tackle banks' bad asset problem. It was a radically new thought being proposed by a senior central bank official, even though it was floated outside the realm of central banking before. Acharya himself had research papers on the issue. 

At the time of the speech in February 2017, Acharya was just a month into his job and the media was hungry for his views. He did give a glimpse into himself every now and then. He once jokingly called himself the "poor man's Raghuram Rajan", referring to the former governor's "rock-star" banker status in the country.  

A die-hard romantic, Acharya has a few music albums to his name and is the lead singer of his own band. His resume runs into 22 pages and is stuffed with qualifications, experiences and numerous research papers that have been presented in seminars and published over the years in prestigious journals. Yet, the "general" tab is short: "Indian, born on 1 March 1974, married."

In subsequent interactions, the media found Acharya to be a friendly and easy-going person who was willing to take questions and was patient enough to explain in detail what he meant, in contrast to Governor Urjit Patel's economical way with words. 

Those easygoing days, however, lasted a few months till Acharya turned into an elusive, tight-lipped banker who would prefer to speak through his speeches where the media was not invited. The speech copy was uploaded on the Reserve Bank of India (RBI) website nevertheless.

Nowadays, Acharya interacts with the media only from the policy press conference platform. Still, he is constantly in the news, and interestingly on a variety of topics. According to observers, Acharya comes across as an intellectual who would raise unique, sometimes controversial issues, and lob the ball to the people's court to debate. 

His latest is airing publicly his criticism of the government and warning them of harming RBI's autonomy at the steep cost of financial instability. The provocation for this is not known yet, but is assumed to be the government's intention on directing the RBI on issues such as liquidity to non-banking financial companies and easing the restrictive prompt corrective action (PCA) framework for banks, among others. 

In his latest speech, Acharya cited the exit of Argentina's central bank governor, and how the country battled a financial mess soon after. Analysts saw him alluding to a possible exit of the RBI governor and the damage that could do to the financial markets in India. 

"Governments that do not respect central bank independence will sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution; their wiser counterparts who invest in central bank independence will enjoy lower costs of borrowing, the love of international investors, and longer life spans," Acharya said in his October 26 speech. 

As expected, the speech was not appreciated by government officials, who privately termed Acharya's open criticism as "immature". But this is not the first time that Acharya has stirred up a hornet's nest. In January, bankers were upset that Acharya described them as clueless about interest rate management. 

In his address to the Fixed Income Money Markets and Derivatives Association, most of the members of which are bank treasury officials, Acharya had said, "Interest rate risk of banks cannot be managed over and over again by their regulator." 

"It appears that for most banks investment activity essentially consists of two steps -- buying and hoping for the best. But hope should not be a Treasury desk's primary trading strategy."

Asking the regulator to help banks in distress is "akin to the use of steroids", which gets "addictive and has long-term adverse effects in the form of frequent relapse", Acharya had said.

Predictably, bankers were not amused. They squarely blamed the RBI for a sharp rise in yields, which led to steep mark-to-market losses on banks' books in the December quarter. 

Bankers exacted their revenge by not buying government bonds anymore. The situation was so bad that the government had to intervene and discuss with bankers why they were so reluctant to buy bonds and what could be done. 

In his less than two years at the RBI, Acharya has been a strong proponent of cleaning up bad debt on banks' books and is an active supporter of the PCA framework for weaker public sector banks.  

In his recent speech, Acharya said banks under the PCA are witnessing a turnaround, even as the economy is not starving of credit as healthier banks have picked up the tab. 

With controversies and a bevvy of difficult policy decisions taking most of his time, the once easy-going banker could be finding it difficult to hum old Hindi songs like before. But the inclination to find solace in music has been a habit for this IIT Mumbai topper, who in 2005 composed his first album, Yaadon Ke Silsile -- An Ode to Friends and Some Romantic Moods. Several videos even show him singing old Kishore Kumar songs at RBI staff functions.  

It is hard to say if Acharya would want an extension after 2020, or would like to go back to academia at New York University's Stern School of Business. His family has not shifted to India with him. 

In the interim, one hopes Acharya would return to his easy ways when he would joke on how monetary policy was conducted before and after the inflation targeting framework. Before the framework, it was the RBI governor singing "intezaar (not now, not now, wait for some more time)," he had once quipped. 


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