india

Updated: Jul 18, 2019 07:42 IST

The Bimal Jalan panel set up to review the economic capital framework of the Reserve Bank of India (RBI) has decided to recommend transfer of excess reserves to the government in a staggered manner over a period of three to five years based on a predetermined formula.

“We have finalised the report. It will be submitted in 10 to 15 days to the RBI after editing,” an official of the panel said, adding that the recommendation for transfer of excess reserves involved both contingency fund as well as revaluation fund. The Bimal Jalan panel set up to review the economic capital framework of the Reserve Bank of India (RBI) has decided to recommend transfer of excess reserves to the government in a staggered manner over a period of three to five years based on a predetermined formula.

“We have finalised the report. It will be submitted in 10 to 15 days to the RBI after editing,” an official of the panel said on the condition of anonymity. The panel had its last meeting on Wednesday.

The official said the recommendation of the panel for transfer of excess reserves involved both contingency fund as well as revaluation fund. “We have recommended a periodic review of the economic capital framework of the RBI,” he added.

However, the official refused to divulge the details regarding the amount of money likely to be transferred to the government.

While the currency and gold revaluation reserves of the RBI have more than tripled from Rs 1.99 lakh crore in FY09 to Rs 6.92 lakh crore in FY18, the contingency fund has grown 50% during the same period from Rs 1.53 lakh crore to Rs 2.32 lakh crore.

The government believes the RBI is being too conservative and is sitting on huge reserves and hence part of it should be transferred to the government for more productive use. After things came to a head late last year, the RBI set up a committee to review its capital framework.

Radhika Pandey, economist at the National Institute of Public Finance and Policy, said the optimum outcome should be to amend the RBI Act to give certainty to reserve transfers every year.

“In most of the countries some sort of guidance is there in the law itself. It puts to rest these debates every few years as to how much the RBI needs to transfer to government every year,” she added.

The government has budgeted to receive Rs 1.06 lakh crore in FY20 from the RBI through dividend even though the central bank has already paid an interim dividend of Rs 28,000 crore in February.

The official also admitted that there were differences within the panel, pointing to the dissent note submitted by finance secretary Subhash Chandra Garg to the panel.

Garg is said to have favoured a one-time transfer instead of a staggered transfer of excess reserves to the government from the RBI.

“The dissent note will be included in the report unless it is withdrawn before the report is submitted,” the official said.

In an interview with Mint, Garg on July 8 said the Jalan committee report will be discussed by the board of the RBI.

“They will take an appropriate call. I don’t think that it is probably required to be discussed by the government,” he added.

In December last year, the RBI had set up the Jalan panel. Former deputy governor Rakesh Mohan is the vice-chairman of the panel.

Other members include RBI central board directors Bharat Doshi and Sudhir Mankad; deputy governor NS Vishwanathan; and finance secretary Subhash Chandra Garg. The panel later got extensions as it could not resolve differences among members.

“(It would) propose a suitable profits distribution policy, taking into account all the likely situations of the RBI, including the situations of holding more provisions than required and the RBI holding less provisions than required,” the central bank said in a statement.

The committee was mandated to also suggest an adequate level of risk provisioning that the RBI needs to maintain. That apart, any other related matter, including treatment of surplus reserves created out of realized gains, was also come within the ambit of this committee.