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RBI to transfer Rs 1.76 lakh cr surplus to Centre, accepts Bimal Jalan panel recommendations

Firstpost
August 27, 2019

  • The move could help the government to stimulate the economy without fiscal slippage

  • The Bimal Jalan committee, constituted to assess the adequate size of capital reserves that the RBI should hold, submitted its report today

  • The finance ministry was of the view that the buffer of 28 percent of gross assets maintained by the RBI is well above the global norm of around 14 percent.

Post-the approval of the Bimal Jalan Committee recommendations, the Reserve Bank of India (RBI) will transfer a surplus of Rs 1.76 lakh crore to the government.
The move could help the government to stimulate the economy without fiscal slippage. The Bimal Jalan committee, constituted to assess the adequate size of capital reserves that the RBI should hold, submitted its report today.
The board of central bank decided to transfer a sum of Rs 1,76,051 crore to the Government of India comprising Rs 1,23,414 crore of surplus for the year 2018-19 and Rs 52,637 crore of excess provisions identified as per the revised Economic Capital Framework (ECF), the RBI said in a statement.
The meeting was chaired by RBI Governor Shaktikanta Das. Besides Das, there were RBI's deputy governors NS Vishwanathan and Mahesh Kumar Jain. Prasanna Kumar Mohanty, Dilip Shanghvi, Natarajan Chandrasekaran, Bharat Doshi, Sudhir Mankad, Manish Sabharwal, Swaminathan Gurumurthy, Revathy Iyer and Sachin Chaturvedi also attended the meeting. Rajiv Kumar, Finance Secretary and Secretary, Department of Financial Services and Atanu Chakraborty, Secretary, Department of Economic Affairs, were also present.
The six-member panel, under former RBI Governor Jalan was appointed on 26 December, 2018, to review the economic capital framework (ECF) for the RBI after the finance ministry wanted the central bank to follow global best practices and transfer more surplus to the government.
As per various estimates, the RBI has over Rs 9 lakh crore of surplus capital with it.
The surplus capital transfer would help the government meet its fiscal deficit target as it will come as a windfall to the exchequer, according to PTI.
The government has set a fiscal deficit target of 3.3 percent of the gross domestic product (GDP) for the current fiscal, revised downward from 3.4 percent pegged in the Union Budget for 2019-20.
Besides surplus capital transfer, the government is expecting Rs 90,000 crore dividend from the RBI in the current financial year as against Rs 68,000 crore received last fiscal.
The other key members of the committee include Rakesh Mohan, former deputy governor of the RBI, as vice-chairman; Finance Secretary Rajiv Kumar; RBI Deputy Governor N S Vishwanathan; and two RBI central board members—Bharat Doshi and Sudhir Mankad.
Urjit Patel resigned over transfer of surplus capital issue
The government and the RBI under previous governor Urjit Patel had been at loggerheads over the Rs 9-lakh crore surplus capital with the central bank.
Patel, who is the first governor since 1990 to step down before his term ended, was at loggerheads with the finance ministry on the appropriate size of the reserves the central bank must hold among other issues.
The differences came out in the open when Deputy Governor Viral Acharya, in a hard-hitting speech in October 2018, talked about the independence of the central bank, arguing that any compromise could be "potentially catastrophic" for the economy.
Govt constitutes panel to examine ECF
The finance ministry, however, was of the view that the buffer of 28 percent of gross assets maintained by the RBI is well above the global norm of around 14 percent. Following this, the RBI board in its meeting on 19 November 2018, decided to constitute a panel to examine ECF.
In the past, the issue of the ideal size of the RBI's reserves was examined by three committees—V Subrahmanyam in 1997, Usha Thorat in 2004 and Y H Malegam in 2013.
While the Subrahmanyam panel recommended for building a 12 percent contingency reserve, the Thorat panel suggested it should be maintained at a higher 18 percent of the total assets of the central bank.
The RBI board did not accept the recommendation of the Thorat committee and decided to continue with the recommendation of the Subrahmanyam committee.
The Malegam panel said the RBI should transfer an adequate amount of its profit to the contingency reserves annually but did not ascribe any particular number.

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