Jalan panel proposes transfer of RBI reserves to govt in tranches over 3-5 years

The Bimal Jalan Committee on Economic Capital Framework has suggested that surplus reserves of the Reserve Bank of India (RBI) should be transferred to the government in phases over three-five years. The final report on Committee on Economic Capital Framework, to be presented before RBI Governor Shaktikanta Das in 15 days, has proposed a formula for the 'nominal' transfer of the RBI surplus reserves. However, reports also suggest that the committee might not be unanimous on the issue and that Finance Secretary Subhash C Garg, one of the six committee members, has some divergent views on the matter. These objections will also be included in the final report.

The Committee on Economic Capital Framework, which met on Wednesday for the final time, has reportedly recommended transferring of funds from both contingency and revaluation reserves to the government. However, the panel has also sought a 'period review' of the RBI capital framework. Though there's no clarity on the committee's suggestion on the amount of money to be transferred to the government, Finance Minister Nirmala Sitharaman had budgeted to receive dividends worth over Rs 1.6-lakh crore from the central bank this year.

The central bank had the total surplus cash reserves of Rs 9.43 lakh crore on June 30, 2018. It has seen a manifold rise in its surplus funds after a surge in its revaluation reserves from Rs 1.99 lakh crore in FY09 to Rs 6.922 lakh crore in FY18. During the same period, its contingency fund rose to Rs 2.32 lakh crore. Right now, the central bank's assets development fund amounts to Rs 22,811 crore and its foreign exchange forward contracts value at 3,262 crores. The RBI's investment revaluation account is worth Rs 13,285 crore.

Apart from Jalan and Garg, other members of the panel include former deputy governor Rakesh Mohan (vice-chairman of the panel), RBI deputy governor NS Vishwanathan, and RBI central board members Bharat Doshi and Sudhir Mankad.

The transfer of RBI's reserves to the government has been a contentious issue between the two sides for a long time. The government and the RBI under the previous governor Urjit Patel were at loggerheads over the issue of the surplus capital with the central bank. The finance ministry was of the view that the buffer of 28 per cent of gross assets maintained by the RBI is well above the global norm of around 14 per cent. Following this, the RBI board in its meeting on November 19, 2018, decided to constitute a panel to examine ECF.

In the past, the issue of the ideal size of RBI's reserves was examined by three committees -- V Subrahmanyam (1997), Usha Thorat (2004) and Y H Malegam (2013). While the Subrahmanyam committee recommended that contingency reserve should be built up to 12 per cent, the Thorat committee said the reserve adequacy should be maintained at 18 per cent of the total assets. The RBI board did not accept the recommendation of the Thorat committee and decided to continue with the recommendation of the Subrahmanyam panel.

Also read: Govt doesn't need RBI funds for next six months: Arun Jaitley 

Economic capital framework: Fixing something that ain't broke

Also read: RBI has more than 'adequate' cash reserves; can transfer Rs 1-lakh crore to govt: report 

Edited by Manoj Sharma