Amid slowing economic growth and rising global uncertainty, the Reserve Bank of India (RBI) board on Monday approved transfer of Rs 1.76 lakh crore surplus reserves to the central government. The surplus transfer, which is 1.25 per cent of the GDP (2018-19), comprises of Rs 1.23 lakh crore of surplus for 2018-19 and Rs 52,637 crore of excess provisions identified as per the revised Economic Capital Framework (ECF) adopted at the meeting.
RBI, in consultation with the government, had constituted a six-member expert committee headed by former RBI Governor Bimal Jalan in December last year to review the extant economic capital framework of the central bank.
Top highlights from RBI's board meeting:
- The RBI board accepted the recommendations of the Bimal Jalan Committee, which includes maintaining the realised equity within 6.5-5.5 per cent of balance sheet and economic capital levels at 20-24.5 per cent of balance sheet.
- Based on the recommendation of Bimal Jalan-led committee, the central board of the RBI decided to transfer a sum of Rs 1,76,051 crore to the Government of India comprising of Rs 1,23,414 crore of surplus for the year 2018-19 and Rs 52,637 crore of excess provisions.
- In the last one decade, this is the second time the RBI has transferred its surplus to the govt in excess of Rs 50,000 crore. In 2014, the RBI had transferred Rs 52,679 crore to the govt over a period of three years on the recommendations of the Y H Malegam committee.
- At a time when the govt is desperate to kick start the economy which is slipping into a slow down and is short on liquidity, the surplus fund would help the government achieve its fiscal deficit target for the current fiscal. The government has set a fiscal deficit target of 3.3 per cent of the GDP in the current fiscal, revised downwards from the goal of 3.4 per cent mentioned in the Interim Budget in February.
- The RBI board has also decided to set the economic capital levels comprising the contingency fund and revaluation reserves within the range of 24.5 per cent to 20 per cent of balance sheet as on 30 June.
- As on June 30, 2019, the RBI stands as a central bank with one of the highest levels of financial resilience globally.
- The board reviewed the current economic situation, global and domestic challenges and various areas of operations of the Reserve Bank. The board also approved the Annual Report of the Reserve Bank for the year 2018-19.
- The RBI committee has recommended a surplus distribution policy, which targets the level of realised equity and revaluation balances. The realised equity could be used for meeting all risks as they were primarily built up from retained earnings, while revaluation balances could be reckoned only as risk buffers against market risks as they represented unrealized valuation gains and hence were not distributable.
- The realised equity stood at 6.8 per cent of balance sheet, while the requirement recommended by the Committee was 6.5 to 5.5 per cent of balance sheet. The RBI board has decided to maintain the realised equity level at 5.5 per cent of balance sheet and the resultant excess risk provisions of Rs 52,637 crore were written back.
- The committee has recommended the adoption of Expected Shortfall (ES) methodology under stressed conditions for measuring the RBI's market risk on which there was growing consensus among central banks as well as commercial banks over the recent years. While central banks are seen to be adopting ES at 99 per cent confidence level (CL), the Committee has recommended the adoption of a target of ES 99.5 per cent CL keeping in view the macroeconomic stability requirements.
Edited by Chitranjan Kumar