New York University Professor Viral Acharya Appointed RBI Deputy Governor

Acharya has been a vocal supporter of a ‘bad bank solution’ to clean up the banking sector

Viral Acharya, CV Starr Professor Of Economics, NYU Stern School Of Business. (Image: BloombergQuint)
Viral Acharya, CV Starr Professor Of Economics, NYU Stern School Of Business. (Image: BloombergQuint)

Viral Acharya, professor of economics at the New York University’s Stern School of Business, has been appointed deputy governor at the Reserve Bank of India. This position fell vacant after Urjit Patel became the governor in September this year.

The decision was announced by the government following a cabinet meeting on Wednesday morning.

As deputy governor, Acharya will look after the Monetary Policy and Research cluster, the RBI said in a statement.

“I am honored to be given the chance to join the Reserve Bank of India as deputy governor and I look forward to the opportunity. Beyond that it is premature to say anything,” Acharya said to BloombergQuint when contacted over the phone.

Acharya has significant experience in global finance, specifically in theoretical risk assessment of the financial sector. In 2015, Acharya co-authored a research paper that analysed “the precarious condition of public sector banks” in India. The paper found that “the onus of remedying this situation through radical reform lies primarily with the government.”

In conclusion the paper recommended a few fixes, mentioned here in brief:

  • Recapitalisation, maybe via deep-discount rights issues
  • Professionalise the process of board appointments
  • Wean them off their funding advantage from government guarantees
  • Privatise public sector banks or reallocate their assets

This paper, published in June last year, said that the shrinkage of public sector banks will have a “dampening effect on economic growth” and the cost of “inadequate reform” of the public sector banks will be “steep”.

The paper recommended that public sector banks be privatised in the long term.

Finally, over the long run, some of the public sector banks can be privatized or their assets reallocated. Some of them could be acquired by the relatively well-capitalized private sector firms; the ones with worst asset quality could be wound down; and, greater entry of smaller and newer banks can be enabled to yet maintain healthy levels of competition.
The Relative Health Of Indian Public Sector And Private Sector Banks by Viral Acharya And Krishnamurthy Subramanian 

In an interview to BloombergQuint in October, Acharya advocated a bad bank model for the Indian banking sector.

I am absolutely proposing, either explicitly or implicitly, that we separate the unhealthy parts of the troubled banks from the healthy parts.
Viral Acharya, CV Starr Professor Of Economics, NYU Stern School Of Business

Acharya added that some non-performing public sector banks should find a way to transfer their assets to private banks which have the required capitalisation.

Now, the right creative destruction according to my opinion for this would be that even if we cannot repeal the legal statute that easily, we need to find the minimum level of transfer, of assets, branches, franchise that is possible, from unhealthy parts of the banking sector to the healthy parts of the banking sector.
Viral Acharya, CV Starr Professor Of Economics, NYU Stern School Of Business

The central bank has four deputy governors who are appointed for three year terms. Traditionally, at least three of them have been RBI insiders while the fourth is picked externally.

The division of the portfolios is done internally by the central bank. The key portfolio of monetary policy, which was being handled by Patel, is currently under the watch of R Gandhi. SS Mundra handles the banking supervision department among others. NS Vishwanathan, the third deputy governor handles banking regulation.

Acharya’s entry in the central bank will not be his first brush with the Indian financial sector. He has previously been a member of the Committee of Financial Sector Legislative Reforms Commission and also served on the International Advisory Board of Securities and Exchange Board of India.

Acharya also dabbles in music and song-writing and has about 10 songs to his name, according to his profile page on the NYU-Stern website. The page lists the songs that he has composed and provides a link to their lyrics.

His discography includes songs such as Yadon Ke Silsele – an Ode to Friends, and Kya Yeh Wohi Phir Raat Hai – Passion.

(Source: NYU-Stern website)
(Source: NYU-Stern website)