At a time when everyone was questioning unrealistically high real estate prices, Reddy sounded off banks, cautioning them about overexposure to the sector. While some thought he was raining down on their party, Reddy also raised caution over banks’ exposure to credit cards, personal loans and the equity markets. Rising non-food credit was clearly a matter of concern. Although capital account convertibility was looked at again in ’06 and other banking reforms were pushed, Reddy was not one to jump the gun.
The governor was criticised for not doing enough for banking reforms. "He was particularly prickly when it came to foreign banks owning stakes in Indian ones and was able to ensure that even weaker banks were not vulnerable," says an ex-RBI official. For all the criticism about seeking to "surprise" the market—and "contributing to inflation" by stemming the rupee's appreciation—Reddy’s biggest achievement, say bankers, was maintaining the RBI’s autonomy. Perhaps that saved the day more than anything else.
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