Indranil Sen Gupta, chief India economist at BofAML said in a note that high non-performing loans in the system do not really need higher Reserve Bank of India (RBI) contingency reserves and welcomed the use of excess RBI capital to recapitalize PSU banks to support recovery.
‘There is no bar as long as the RBI maintains ₹5 crore/$0.7 million of reserve fund under Section 46. While Section 47 enjoins the RBI to credit its annual surplus to the government, after provisions, it does not place any restriction on further transfers," the report said, adding that the RBI Act permits transfer of past excess reserves.
In December last year, the central bank set up a committee on economic capital framework (ECF), which was expected to submit its report within 90 days from the date of its first meeting. Besides, former RBI governor Bimal Jalan and economic affairs secretary Subhash Chandra Garg, former RBI Deputy Governer Rakesh Mohan, Directors of RBI’s central board Bharat Doshi and Sudhir Makand, and RBI Deputy Governor NS Vishwanathan are also part of the panel. It was constituted at a time when the government and the central bank were at loggerheads on the issue RBI’s surplus transfer to the government.