India - Reserve judgment - FT.com Raghuram Rajan's first speech as head of India's central bank relied heavily on the kudos that comes with being a former chief economist of the International Monetary Fund. He could say things like "the central bank is not meant to win votes, or Facebook "likes" ," and everyone knows he means it. Mr Rajan needs all his credibility to make unpopular decisions on the currency, contain inflation and fill the hole in the country's fiscal deficit as economic growth slows. Still, he can only rely on words for so long. He wants to renew confidence in the rupee by focusing on low and stable inflation. But he did not explain how the Reserve Bank of India would achieve that (he will reveal more on September 20). Instead his speech focused on reform of India's fragile banking sector. Rising bad debts and limits to competition have hampered the sector. So he aims to make it easier for existing banks to expand, encourage new entrants and urge banks to rein in bad debts to clean up bad balance sheets. Foreign banks will also be able to enjoy "near-national" treatment. Moreover, he wants to entice more lending to productive sectors and away from government bonds. Again, this is all very well, but painful change is particularly hard to implement when growth is slowing. Debt ratios in much of corporate India, for example, are already sky-high. And while it is right for Mr Rajan to concentrate on India's financial backbone, investors will need to see evidence before they rush back in. Although India's debt markets have seen the biggest withdrawal of foreign funds, a net $1bn has flowed into equity markets since March, even this buying is faltering. True, India's stock market looks cheap on 13 times expected earnings, but this valuation remains two-fifths higher than after the financial crisis. Sectors that benefit from the weak rupee, such as IT outsourcers, are expensive. Tata Consultancy's multiple is near five-year highs. Mr Rajan must back his words with action. But even then, the RBI cannot fix India's woes on its own.