Transfer of RBI reserves to Govt: Jalan panel to submit its report soon

The Bimal Jalan Committee on Economic Capital Framework will soon submit its report to the Reserve Bank of India Governor, Shaktikanta Das. Based on the recommendations, it will be decided what share of RBI’s reserves should be transferred to the Government.

The Committee met for the last time on Wednesday, and, according to sources, the report was given final touches. “It has suggested a transfer of funds from RBI in tranches over three-five years,” a source said, while adding that the report will reflect some differences among panel members. It is believed that Finance Secretary Subhash C Garg, who is a member of the panel, had a difference of opinion and that would be part of the report.

After differences cropped up over how much of RBI’s reserve could be transferred, Government officials had maintained that the global norm was to have reserves of 14 per cent of total assets; at present the RBI has 27 per cent of total assets. There should be norms as to how much the RBI could keep, they said. This issue figured in the communication between the government and the RBI last year — and although the government had said it would not ask for a part of the surplus reserve to be transferred to it, the general feeling was that the fixing of a norm was the precursor to a transfer.

To end this debate, the RBI in December constituted a committee under former RBI Governor Bimal Jalan. According to the terms of reference, keeping in consideration (i) statutory mandate under Section 47 of the RBI Act that the profits of the RBI shall be transferred to the Government, after making provisions ‘which are usually provided by the bankers’, and (ii) the public policy mandate of the RBI, including financial stability considerations, the Expert Committee would review status, need and justification of various provisions, reserves and buffers presently provided for by the RBI, and review global best practices followed by central banks in making assessments and provisions for risks, which central bank balance sheets are subject to.

It was asked to suggest an adequate level of risk provisioning that the RBI needed to maintain, to determine whether the RBI held provisions, reserves and buffers in surplus/ deficit of the required level of such provisions, reserves and buffers, and to propose a suitable profit distribution policy taking into account all the likely situations of the RBI, including a situation where the central bank held provisions that were more than or less than required. It was also asked to consider any other related matter, including treatment of surplus reserves created out of realised gains.