2019 – Posted in: Daily News

REPORT ON RESERVE BANK OF INDIA CAPITAL

For: Preliminary & Mains

Topics covered: Bimal Jalan Committee report, Suggestions, Why the government wants surplus transfers?

News Flash

The Bimal Jalan committee constituted to assess the optimum size of capital reserves that the RBI should hold finalized its report.

Background

The committee was appointed in December 2018.
The task is to review the economic capital framework (ECF) for the Reserve Bank of India (RBI).
As the finance ministry wanted the central bank to follow global best practices and transfer more surplus to the government.
The RBI has over Rs 9 lakh crore of surplus capital with it.

Highlights

The surplus transfer from the RBI to the government would be periodic and would spread over 3-5 years.
The surplus capital transfer would help the government meet its fiscal deficit target.
The government has set a fiscal deficit target of 3.3 per cent of the gross domestic product (GDP) for the current fiscal.
The government is also expecting Rs 90,000 crore dividend from the RBI in the current financial year.

Why the government wants a surplus transfer?

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.

Following this, it is decided to constitute a panel to examine the economic capital framework (ECF).

Previous Suggestions

In the past, the issue of the ideal size of the Reserve Bank of India reserves was examined by three committees—

V Subrahmanyam in 1997- recommended for 12% contingency reserve
Usha Thorat in 2004- suggested 18% of the total assets of the central bank
Y H Malegam in 2013- Suggested that the RBI should transfer an adequate amount of its profit to the contingency reserves annually but did not ascribe any particular number.

The RBI board did not accept the recommendation of the Thorat committee and decided to continue with the recommendation of the Subrahmanyam committee.

Source: Indian Express

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