Bimal Jalan to lead panel on RBI’s economic capital framework
The expert panel on RBI’s economic capital framework was formed to address the issue of RBI reserves—one of the sticking points between the central bank and the government
New Delhi: The Reserve Bank of India (RBI) on Wednesday set up an expert committee, headed by its former governor Bimal Jalan, to suggest how the central bank should handle its reserves and whether it can transfer its surplus to the government.
The committee, which has been formed to review the existing economic capital framework (ECF), will have former RBI deputy governor Rakesh Mohan as its vice chairman. Other members are RBI central board directors Bharat Doshi and Sudhir Mankad; deputy governor N.S. Vishwanathan; and economic affairs secretary Subhash Chandra Garg. The panel will submit its report within 90 days of its first meeting.
The government has been insisting that the central bank hand over its surplus reserves amid a shortfall in revenue collections. Access to the funds will allow finance minister Arun Jaitley to meet deficit targets, infuse capital into weak banks to boost lending and fund welfare programmes. The Jalan panel will decide whether RBI is holding provisions, reserves and buffers in surplus of the required levels.
“[It would] propose a suitable profits distribution policy taking into account all the likely situations of the RBI, including the situations of holding more provisions than required and the RBI holding less provisions than required,” the central bank said in a statement on Wednesday.
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The ECF committee will also suggest an adequate level of risk provisioning that the RBI needs to maintain. That apart, any other related matter, including treatment of surplus reserves created out of realized gains, will also come within the ambit of this committee.
The Narendra Modi government and the central bank have been at loggerheads over a clutch of issues, including relaxation of prompt corrective action norms on weak banks, special liquidity window for non-banking financial companies, RBI’s 12 February circular on defaulters and the transfer of surplus reserves to the government. These differences culminated in the resignation of RBI governor Urjit Patel.
The central bank’s core reserve —contingency fund—is only around 7% of its total assets and the rest of it is largely in revaluation reserves, which fluctuate with corresponding changes in currency and gold valuations. In 2017-18, the central bank’s contingency funds and revaluation reserves stood at ₹2.32 trillion and ₹6.92 trillion respectively.
RBI data shows that the growth in revaluation reserves has far exceeded the growth in contingency fund. While revaluation reserves have more than tripled from ₹1.99 trillion in 2008-09 to ₹6.92 trillion in 2017-18, the contingency fund has grown 50% during the same period from ₹1.53 trillion to ₹2.32 trillion.
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