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RBI approves surplus transfer to Govt

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RBI board accepts Jalan panel report, approves surplus transfer of Rs 1.76 lakh cr to govt

Mumbai: Central board of the Reserve Bank of India (RBI) on Monday accepted Bimal Jalan committee's recommendations and approved a surplus transfer of Rs 1.76 lakh crore to the government. The surplus comprises Rs 1,23,414 crore for 2018-19 and Rs 52,637 crore of excess provisions identified as per the revised Economic Capital Framework (ECF) adopted at the board meeting held today.

Sameer Kalra, Founder of Target Investing, said the surplus transfer, which is 1.25 per cent of the GDP (2018-19), will give some cushion to the government for higher PSU capex, which is required to meet high growth rate. The central bank, in consultation with the government, had constituted a committee chaired by former RBI governor Bimal Jalan to review the extant economic capital framework of the RBI.

“The committee’s recommendations were based on the consideration of the role of central banks’ financial resilience, cross-country practices, statutory provisions and the impact of the RBI’s public policy mandate and operating environment on its balance sheet and the risks involved,” RBI said in a release.

Hence, the resilience of the RBI needs to be commensurate with its public policy objectives and must be maintained above the level of peer central banks as would be expected of a central bank of one of the fastest growing large economies of the world, the central bank said.

On the framework of transfer of excess reserves, the committee recommended a surplus distribution policy, which targets the level of realised equity to be maintained by the RBI, within the overall level of its economic capital vis-à-vis the earlier policy, which targeted total economic capital level alone.

“Only if realised equity is above its requirement, will the entire net income be transferable to the government. If it is below the lower bound of requirement, risk provisioning will be made to the extent necessary and only the residual net income (if any) transferred to the government,” RBI said in a release.

While the revised framework technically would allow the RBI’s economic capital levels as on June 30, 2019 to lie within the range of 24.5 per cent to 20.0 per cent of balance sheet (depending on the level of realised equity maintained and availability of revaluation balances), the economic capital as on June 30, 2019 stood at 23.3 per cent of balance sheet.

As financial resilience was within the desired range, the entire net income of Rs 1,23,414 crore for the year 2018-19, of which an amount of Rs 28,000 crore has already been paid as interim dividend, will be transferred to the government. This is in addition to the Rs 52,637 crore of excess risk provisions, which has been written back and consequently will be transferred.

The six-member panel was appointed on December 26, 2018, to review the economic capital framework (ECF) for RBI after the finance ministry wanted the central bank to follow global best practices and transfer more surplus to the government. The surplus capital transfer is expected to help the government meet fiscal deficit target as it will come as a windfall to the exchequer.

The government has set a fiscal deficit target of 3.3 per cent of the gross domestic product (GDP) for the current fiscal, revised downward from 3.4 per cent pegged in the interim Budget in February.

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