5 Challenges ahead for the new RBI Governor Urjit Patel

Former Deputy Governor, Urjit Patel has been appointed as the 24th head of Reserve Bank of India. The formal oath taking ceremony will be held Tuesday when he will be formally inducted into office.

Patel served as RBI's deputy governor since January 2013 and was in charge of monetary policy.

Serving over 43 months in the Central Bank, Patel isn't a stranger to what the title necessitates. As RBI Governor, however, Patel has inherited a number of unfinished tasks.

"The job of RBI governor is not only the monetary policy, RBI governor also looks into the regulations of banks, and non banking financing companies. In that role he has to ensure the smooth running of the financial sector," Economic Affairs Secretary Shaktikanta Das said.

From cleaning up bank balance sheets and unclogging credit pipelines to ensuring economic growth, here are the five challenges that lie ahead of the new RBI chief:

1. Inflation

Inflation is on the rise with food prices leading the way and oil prices ticking up in the global scenario. In June, Consumer Price Index rose to a 22-month high of 5.77 per cent, above the 5 per cent comfort zone.

The RBI's monetary Policy framework to target inflation is containing the number to less than 4 per cent. Patel who is known to favour low inflation in the economy has this as a major task ahead of him.

2. Growth

Patel will have to heavily focus on growth after the quarterly results reported a 7.1 per cent growth, slowest since April to June Quarter in 2014 where the rate was 6.7 per cent.

The government's target is 8 per cent in the year.

"He (Patel) will keep in mind the inflation target and the monetary policy. He will also keep in mind the requirements of growth which is a mandate of the Reserve Bank of India Act," Economic Affairs Secretary Shaktikanta Das said.

"In particular, he has to ensure flow of credit to various sectors of economy, in particular agriculture and the MSME (Micro, Small and Medium Enterprises) sectors," he said.

3. Interest Rate

When Patel chairs his first meeting of the Monetary Policy Committee he will have to decide interest rates from October 4th policy announcement.

However, Patel will have to keep in mind to balance interest rate and the need to stimulate growth.

4. PSU banking reform

India's Public Sector Undertaking Banks needs structural and financial changes and is still an unfinished business. Asset quality resolution process, problem of NPAs and bad debts pose as prime hurdles of the stressed banking sector in India.

5. Exchange Rates

Due to political pressure and perception, the government demands a stronger rupee. On the other hand, economically there may be a case for further depreciation in the currency.

The challenge Patel will have to come over is to maintain domestic currency at a level between 65 and 70 rupees to the dollar.