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

The Reserve Bank of India (RBI) on Monday approved the transfer of record Rs 1.76 lakh crore dividend and surplus reserves to the government, boosting Prime Minister Narendra Modi-led regime's prospect to stimulate the slowing economy without widening fiscal deficit.

The excess reserve transfer is in line with the recommendation of former RBI governor Bimal Jalan-led panel constituted to decide size of capital reserves that the central bank should hold. The government was represented by Finance Secretary Rajiv Kumar in the panel which finalised its report on August 14 by consensus.

Governor Shaktikanta Das-led RBI central board gave its nod for transferring to the government a sum of Rs 1,76,051 crore comprising Rs 1,23,414 crore of surplus for the year 2018-19 and Rs 52,637 crore of excess provisions identified as per the revised Economic Capital Framework (ECF), the apex bank said in a statement.

The receipts from the RBI will give a fillip to the government's efforts to boost the economy from a five-year low. Finance Minister Nirmala Sitharaman had last week announced a slew of measures to prop up growth even as the government tried to stick to the target of keeping fiscal deficit at 3.3 per cent of the GDP. The additional cash will now give the Centre more headroom for stimulating the economy.

The Modi government and the RBI under previous governor Urjit Patel had been at loggerheads over the Rs 9-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 by the RBI is well above the global norm of around 14 per cent. Following this, the RBI board in its meeting on November 19, 2018, decided to constitute a panel to examine ECF.

Subsequently, the six-member panel, under former RBI Governor Jalan was appointed on December 26, 2018, to review the economic capital framework (ECF) for the Reserve Bank of India (RBI) after the finance ministry wanted the central bank to follow global best practices and transfer more surplus to the government.

Since 2013-14, the RBI has been paying 99 per cent of its disposable income to the government, which is battling to rein in deficits.

As far as the dividend is concerned, the statement said "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 of India (in March 2019)".

The government will get a higher dividend Rs 95,414 crore during the current fiscal as against the estimate of Rs 90,000 crore.

The Union Budget 2019-20 had pegged dividend or surplus of the RBI, nationalised banks and financial institutions at Rs 1.06 lakh crore up from Rs 74,140.37 crore realised in the previous fiscal.

In 2017-18, Rs 40,659 crore was transferred in dividend to the government.

During the year (2016-17) of demonetisation, the RBI had transferred Rs 30,659 crore, less than half of the Rs 65,876 crore it had paid in 2015-16.

The Reserve Bank follows July-June financial year and usually distributes the dividend in August after annual accounts are finalised.

The RBI statement citing the Jalan panel report said it has suggested a very robust ECF mechanism and as a result the board adopted a target of Expected Shortfall (ES) of 99.5 per cent Confidence Level (CL) keeping in view the macroeconomic stability requirements.

"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," it said.

The statement further said that the Committee recognised that the RBI's provisioning for monetary, financial and external stability risks is the country's savings for a 'rainy day' (a monetary/financial stability crisis) which has been consciously maintained with the central bank in view of its role as the monetary authority and the lender of last resort.

As a result, it has been recommended to be maintained within a range of 6.5 per cent to 5.5 per cent of the RBI's balance sheet, comprising 5.5 to 4.5 per cent for monetary and financial stability risks and 1.0 per cent for credit and operational risks.

Given that the available realised equity stood at 6.8 per cent of balance sheet, while the requirement recommended by the committee was 6.5 per cent to 5.5 per cent of balance sheet, there was excess of risk provisioning to the extent of Rs 11,608 crore at the upper bound of Contingent Risk Buffer (CRB) and Rs 52,637 crore at the lower bound of CRB.

The Central Board 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 also recommended the development of methodologies for assessing the concentration risk of the forex portfolio as well as jointly assessing the RBI's market-credit risk.

The RBI board also reviewed the current economic situation, global and domestic challenges and various areas of operations of the Reserve Bank.

It, further, approved the Annual Report of the Reserve Bank for the year 2018-19.

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 inputs from PTI