Jalan panel for RBI giving big buffer chunk to govt

Jalan panel for RBI giving big buffer chunk to govt

Bimal Jalan

A panel under former RBI Governor Bimal Jalan set up to suggest how much capital reserves the central bank should keep as a buffer, is set to recommend giving a major chunk to the Centre, a move that is sure to cheer the next government after the elections.

The Jalan committee is expected to submit its report next month.

The RBI currently has a buffer of 28% of its total assets as reserve against the global norm of 13%-14%. “Why should the RBI keep such high reserves with itself? It serves no purpose. It should be channelled to productive use,” a top source privy to the development told DH.

“Even if we go a little below 20%, we will be way above the global norm,” the top source added .

Governments, year after year, seek more reserves as dividend payout from the RBI and the central bank obliges, albeit reluctantly.

But last year, the differences between the government and RBI under then Governor Urjit Patel came into the open. The finance ministry wanted to have a major portion of the Rs 9.6 lakh crore of reserves shifted to the government’s accounts a year ahead of elections.

The move was vociferously opposed by Patel. After Patel’s resignation, incumbent Shaktikanta Das, in consultation with the government, last year set up a committee to examine the capital framework of RBI.

The Centre got Rs 68,000 crore as dividend from the RBI in 2018-19, which was the highest payout ever.

Former chief economic advisor Arvind Subramanian had suggested that the government can claim Rs 4.5 lakh core or more in excess capital from the RBI. Prior to Subramanian, a committee set up under former RBI deputy governor Usha Thorat had suggested that RBI should keep a buffer of 18% of its gross assets.

However, former RBI Governor Raghuram Rajan was absolutely against the move, saying reserves were part of contingency fund held by the central bank.

“They lend strength to make its balance sheet unimpeachable. And, at a time when the government of India wants to borrow from abroad, a strong RBI with AAA rating comes in handy,” according to Rajan.

Besides Jalan, the members of the panel include former deputy governor of RBI Rakesh Mohan as the vice-chairman, finance secretary Subhash Chandra Garg, RBI deputy governor N S Vishwanathan, and two RBI central board members — Bharat Doshi and Sudhir Mankad.