Brief on Dr Urijit Patels

Appointment for Governorship

Kotak30
September 2010

Expect policy
continuity
Retail Inflation
Targeting
PSU NPA resolution to
continue
25-50 bps rate cut in
FY17

As on 22nd August 2016

Everybody by now is aware that Dr Urijit Patel is to succeed Dr Raghuram Rajan as the
next governor of the RBI. Dr Patel comes with a long and hallowed background that has
seen him dabble deep in the precincts of Academia, Governance, Policy Research,
Corporate Leadership and now as a Central Banker.
With India being the few remaining seats of opportunity in an increasingly dull investment
climate, Dr Patels appointment attracts high attention. Most investors are seeking to obtain
a guidance for future policy direction that he might take going forward.
Dr Patel has a strong stint in researching, recommending and addressing the infrastructure
related issues. Be it financial infrastructure, infrastructure financing, energy, or banking
sector. For that reason, it is believed that Dr Patel might appreciate the need for
infrastructure financing (that government is looking to notch-up), without diluting the
commercial viability for the banking sector. Moreso, he might also be in position to take

account of the asset position of the banks vis--vis the infrastructure sector exposure and
the remedies that may be required.
Dr Urijit Patel, in keeping with the recommendations in 2014, is likely to further smoothen
the process for implementation of the Monetary Policy Framework Agreement and retail
inflation targeting by Monetary Policy Committee (MPC). So it is likely, that the next
monetary policy recommendation may be made by the MPC. In that way Dr Patel may be
looking to balance the expectation of the government with the functional requirement of the
central bank. On its, part the government is expected to exercise fiscal discipline.
Our Outlook
Dr Patel has a long relationship with RBI. He would seek a non-disruptive
mode of communication and policy making - Such that displays continuity and
long term thought process embedded within the institution.
For that reason, the monetary policy may not see change in stance and outlook from
the current incumbent in the near to medium term. Therefore, we continue to believe
that RBI is likely to maintain its previous targets and timelines.
For that reason, the scope for a further rate cut of 25-50 bps within the current fiscal
is still valid and relevant.
Amongst other things, INR may tend to initially depreciate a bit. However given the
comfortable $365bn worth of Fx reserves we hold should allow for stable bias on the
currency front. On the yield front, while we have seen a bit of yield hardening, we
are of the view that the same is more temporary in nature. Liquidity remains very
comfortable in the system, and that coupled with possibility of Open Market
Operations (OMOs) and macro-fundamentals is likely to put a lid to uptick in yields.
Monsoons in India do not seem to be a concern hence stoking of inflation due to
agflation (agri inflation) doesnt seem to be such a threat. We expect no major
negative surprise to the 5% CPI target by Jan 2017. Additionally, public sector
banks, provident funds, insurance companies etc would continue to have demand
for govt bonds.
We maintain our view of 1 more rate cut in the least by Mar 2017. We expect 10 yr
gilt benchmark to head towards the 7% region and even look to breach in on the
lower side in FY 2017.

Brief on Dr Urijit Patels

Appointment for Governorship

Kotak30
September 2010

As on 22nd August 2016

General Disclaimer:
Internal guidelines wherever mentioned are operational limits imposed internally and may change from time to
time.
The information contained in this (document) is extracted from internal database and analyst computations. All
reasonable care has been taken to ensure that the information contained herein is not misleading or untrue at the
time of publication. Neither Kotak Mahindra Mutual Fund / Kotak Mahindra AMC Trustee Co. Ltd./ Kotak Mahindra
Asset Management Co. Ltd, its Directors or representatives shall be liable for any damages whether direct or indirect,
incidental, punitive special or consequential including lost revenue or lost profits that may arise from or in
connection with the use of the information Mutual Fund investments are subject to market risks, read all scheme
related documents carefully.