Jalan panel recommends periodic transfer of surplus capital to govt in 3-5 years

A high-level panel led by former RBI governor Bimal Jalan, set up to decide the appropriate capital reserves that the central bank should maintain, on Wednesday finalised its report.

RBI should transfer its surplus cash to the government over the next three-five year period, RBI-appointed Jalan Committee is believed to have recommended in its report. The six-member Jalan panel was appointed on December 26, 2018, to review the Economic Capital Framework for the RBI. The panel has finalised its report and no further meeting will take place, sources said after the meeting concluded in New Delhi.

As per various estimates, the RBI has over Rs 9 lakh crore of surplus capital with it. 

Asked about the quantum of surplus transfer from the RBI to the government, sources said, it cannot be disclosed at the moment but transfer would be periodic and would spread over 3-5 years.

The surplus capital transfer would help the government meet its 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.

Besides surplus capital transfer, the government is expecting Rs 90,000 crore dividend from the RBI in the current financial year as against Rs 68,000 crore received last fiscal.

When asked about presenting the report to the RBI, which constituted the panel last year, the sources said that after editing, date will be sought for submission.

The other key members of the committee include Rakesh Mohan, former deputy governor of the RBI, as vice-chairman; Finance Secretary Subhash Chandra Garg; RBI Deputy Governor N S Vishwanathan; and two RBI central board members—Bharat Doshi and Sudhir Mankad. 

The panel was set up after the government and the RBI, under the previous Governor Urjit Patel, had been at loggerheads over the Rs 9.6 lakh crore surplus capital with the central bank. The Finance Ministry was of the view that the buffer of 28 per cent of gross assets maintained RBI is well above the global norm which is around 14 per cent. The rift eventually led to Urjit Patel stepping down as the RBI governor on December 10, before completing his four-year tenure. A day later former economic affairs secretary Shaktikanta Das was named his replacement.

Meanwhile, in February, the RBI had decided to transfer Rs 28,000 crore in interim surplus for the period of April-December 2018 to the government. 

The RBI Act states that after making provision for bad and doubtful debts, depreciation in assets, contributions to staff and superannuation funds, the central bank is bound to pay the balance of the profits to the government. In the 2016-17 fiscal, the RBI transferred Rs 30,659 crore, and in 2017-18, it transferred a surplus of Rs 50,000 crore. As of June 2018, the RBI reserve funds were close to Rs 9.5 lakh crore, including contingency fund, asset development fund and currency and gold revaluation account.

In the past, the issue of the ideal size of the Reserve Bank of India reserves was examined by three committees—V Subrahmanyam in 1997, Usha Thorat in 2004 and Y H Malegam in 2013. While the Subrahmanyam panel recommended for building a 12 per cent contingency reserve, the Thorat panel suggested it should be maintained at a higher 18 per cent of the total assets of the central bank.

The RBI board did not accept the recommendation of the Thorat committee and decided to continue with the recommendation of the Subrahmanyam committee. The Malegam panel said the RBI should transfer an adequate amount of its profit to the contingency reserves annually but did not ascribe any particular number. 

(With PTI inputs)