M. Narasimham (1927−2021) remains till date the only person who rose from within the ranks of the Reserve Bank of India (RBI) to eventually lead it as governor, even if only for a brief period. His ability to be in the right place at the right time, and dispense the right policy advice, carried him far, and made him indispensable in India’s economic development. 

Born into a prestigious family, Narasimham’s father rose to become a judge of the Andhra Pradesh High Court. His mother Padmavati was the eldest daughter of Sarvepalli Radhakrishnan, India’s first Vice-President and second President. Narasimham spent his early years with his maternal grandparents in Visakhapatnam, before settling down in Mylapore, Chennai, for his foundational education. Narasimham was educated in Loyola College and Presidency College in Chennai, where he made several friends who would eventually go on to become senior officers in the government bureaucracy.

After topping his university examinations, Narasimham chose to continue his education at Cambridge, overruling his grandfather’s advice to study economics at Oxford. In Cambridge, his contemporaries were economist I.G. Patel and statistician C.R. Rao. Narasimham was also active in the Cambridge Majlis, a student body for south Asian students, and eventually rose to become its president. 

Narasimham joined the RBI in 1950 as an officer in the department of research and statistics. To get the role, he was interviewed by doyens of Indian central banking such as B.K. Madan, J.J. Anjaria and P.S. Narayan Prasad, along with governor Benegal Rama Rau and the RBI Board. Early on at the central bank, Narasimham developed a keen interest in the banking sector, and was one of the first research officers in the department of banking research set up in RBI in 1952.

Once in the RBI, Narasimham was quickly identified as a bright young officer, and joined a formidable line-up of young economists, which included Anand Chandravarkar, Deena Khatkhate, V.V. Bhatt and Narasimham himself, who collectively were given the moniker of the ​“Gang of Four” by Khatkhate. Narasimham also worked closely with B.R. Shenoy, D.S. Savkar, and Deputy Governor N. Sundaresan, whose daughter Shanti he would eventually go on to marry. 

During his time at the RBI, Narasimham had several stints outside India, representing it at Commonwealth events and the IMF, before he was asked to return to India to take over the department of banking research, where his career had started. Narasimham rose to become the secretary of the RBI in 1967, and had a ringside seat as the drama of bank nationalisation played out. Narasimham himself was instrumental in advising the government to appoint nominees on bank boards, something that Governor L.K. Jha did not agree to. This perhaps was the point at which Narasimham started drifting away from Mumbai, and towards New Delhi, even as he was up for a promotion to Executive Director, which he turned down for another colleague, V.G. Pendharkar.

Narasimham was close to R.K. Hazari, RBI’s deputy governor, who was handpicked by P.N. Haksar, Indira Gandhi’s all-powerful secretary, to implement bank nationalisation policies properly. In 1971, soon after the independence of Bangladesh, Narasimham was sent to Dhaka to help the new government in Bangladesh establish central banking operations, with the remaining infrastructure of the State Bank of Pakistan. 

Shortly thereafter, Narasimham was summoned to Delhi to work with the ministry of finance as an additional secretary. Narasimham had served the RBI for over 22 years, and in his new role, he worked closely with Manmohan Singh, M.G. Kaul, and P.N. Haksar, with a particular emphasis on increasing rural credit, an area which had spent considerable time working on even within the RBI.

An expert on banking matters, Narasimham spent the 1970s working on banking issues and is widely regarded as the father of regional rural banks. It was during his time as banking secretary that the National Commission on Agriculture issued its report that ultimately led to the establishment of the National Bank for Agricultural and Rural Development, and also the institution of regional rural banks was conceptualised. 

Narasimham also worked with Manmohan Singh and Vijay Joshi to move India’s exchange rate away from a dollar peg towards a trade-weighted basket of currencies, while RBI Governor Jagannathan pushed back citing lack of resources to execute the same. Eventually, Narasimham and C. Subramanian prevailed, with backing from Prime Minister Indira Gandhi, who signed off on the policy once fears of devaluation were addressed. 

Narasimham worked well with various finance ministers, and was offered the role of Deputy Governor at the RBI by C. Subramaniam. Narasimham turned down the offer, since he was in contention to become secretary of the banking department, as well as a member of the RBI board. As always, Narasimham read the tea leaves correctly and stayed at the finance ministry, only to be sent to RBI as governor a few years later, but under a completely different set of circumstances.

In 1977, shortly after the Emergency ended, Narasimham found himself working with a completely new set of political actors, and was summoned by finance minister H.M. Patel, to request RBI governor K.R. Puri to step down. While Puri was shocked to hear this, he rebuffed Patel and Narasimham by asking to stay on until the end of April, under the advice of his guru, according to Narasimham’s autobiography. Puri left the central bank on 2 May 1977.

I.G. Patel, who was the preferred replacement as the new RBI governor, was unavailable for another few months. The government was not keen to appoint R.K. Hazari, the senior-most deputy governor to head the RBI, as he was perceived by the Janata Party government to be close to the previous government. So, following another precedent, they appointed Narasimham as the 13^th governor of the Reserve Bank. Narasimham knew this was a stop-gap appointment, as I.G. Patel was the candidate of choice.

After his short stint at the Reserve Bank as its Governor, Narasimham was sent to the World Bank as India’s Executive Director. This was a critical post, and over a long stint in Washington DC, first at the World Bank and then at the IMF, Narasimham played a critical role in securing India’s external position, especially after the devastating drought of 1979.  His role in arranging the SDR 5 billion loan (the largest advance the IMF had made till then) in 1981 was significant, as he navigated a hostile US Treasury, and pushback from Indian politicians, to secure India’s financing needs. 

This particular IMF programme was critical, as it came before a crisis was already in motion, and hence helped pre-empt a run on the currency, unlike what happened to several Latin American countries in that decade. Narasimham also worked with a young Y.V. Reddy, who was an advisor to the executive director in the World Bank. Narasimham later came back to India from the IMF as the economic affairs secretary, working with finance minister Pranab Mukherjee and was quickly promoted to finance secretary, where he worked closely with Bimal Jalan, among others.

Despite his storied career, M. Narasimham is perhaps most recognized for his prominent role in liberalising India’s banking and financial system, after the economic reforms in 1991. The reports of the two committees he chaired after retirement, in 1991 and 1998, still influence India’s financial structure, and several suggestions made in his reports continue to be advocated as the right way forward.

In the first committee report, which came on the heels of industrial delicensing and devaluation, Narasimham argued strongly for an end to the dual control between the RBI and Ministry of Finance over the banking system, and advocated that the RBI be put firmly in command. His recommendations also included a dramatic reduction in the statutory liquidity ratio (SLR), saying that it should be cut to 25% from 38.5% in phases, abolishing branch licensing, and opening the banking system to private and foreign players.

Narasimham was also asked in 1998 to lead another committee on second generation banking reforms, where he backed the consolidation of public sector banks to create mega-institutions, and reducing government ownership to 33%, a number that Y.V. Reddy wrote in his autobiography was picked by Narasimham as a compromise between members who wanted it to be 26% and those who wanted it to be 51%. 

Narasimham also served on the Prime Minister’s Economic Advisory Council for Atal Bihari Vajpayee, along with I.G. Patel. He was awarded Padma Vibhushan in 2000.

What made Narasimham special was perhaps his ability to find a middle path, which helped him to push through large reforms without ruffling too many feathers. His reports and recommendations have continued to guide India’s banking reforms for the past three decades, and are likely to remain the platform on which the Indian banking system stands upon in the coming years.

About the author

Rahul Bajoria is the head of India and ASEAN economic research at Bank of America. He is the author of The Story of the Reserve Bank of India.