Acceptance of Jalan committee recommendations, revised Economic Capital Framework opened the window
GN Bureau | August 27, 2019
The central board of the Reserve Bank of India (RBI) has decided to transfer Rs 1,76,051 crore to the government, ending a long debate and opening new options for injecting fresh money into the economy.
The RBI central board on Monday adopted the revised Economic Capital Framework (ECF), under which the amount – comprising of Rs 1,23,414 crore of surplus for 2018-19 and Rs 52,637 crore of excess provisions – will be transferred to the centre.
Here is how this happened:
* The RBI, in consultation with the government of India, had constituted an Expert Committee to Review the Extant Economic Capital Framework, under the chairmanship of its former governor, Dr. Bimal Jalan. The committee later submitted its report to the RBI governor. Its recommendations were based on the consideration of the role of central banks’ financial resilience, cross-country practices, statutory provisions and the impact of the RBI’s public policy mandate and operating environment on its balance sheet and the risks involved.
* The committee’s recommendations were guided by the fact that the RBI forms the primary bulwark for monetary, financial and external stability. Hence, the resilience of the RBI needs to be commensurate with its public policy objectives and must be maintained above the level of peer central banks as would be expected of a central bank of one of the fastest growing large economies of the world.
* The central board, in its 578th meeting chaired by governor Shaktikanta Das, accepted all the recommendations and finalized the RBI’s accounts for 2018-19 using the revised framework to determine risk provisioning and surplus transfer. The implications of this decision are:
(i) Realized Equity:
As the available realized equity stood at 6.8 percent of balance sheet, while the requirement recommended by the committee was 6.5 percent to 5.5 percent, there was excess of risk provisioning to the extent of Rs 11,608 crore at the upper bound of CRB and Rs 52,637 crore at the lower bound of CRB. The central board decided to maintain the realized equity level at 5.5 per cent of balance sheet and the resultant excess risk provisions of Rs 52,637 crore were written back.
(ii) Economic capital levels:
While the revised framework technically would allow the RBI’s economic capital levels as on June 30, 2019 to lie within the range of 24.5 percent to 20.0 percent of balance sheet (depending on the level of realized equity maintained and availability of revaluation balances), the economic capital as on June 30, 2019 stood at 23.3 percent of balance sheet. 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. This is in addition to the Rs 52,637 crore of excess risk provisions which has been written back and consequently will be transferred to the government.
* As on June 30, the RBI stands as a central bank with one of the highest levels of financial resilience globally, it said in a statement. The central board also reviewed the current economic situation, global and domestic challenges and various areas of operations of the RBI.
Oracle has showcased new AI-powered capabilities within Oracle Analytics Cloud. Leveraging the Oracle Cloud Infrastructure (OCI) Generative AI service, the new capabilities assist analytics self-service users to more quickly and efficiently conduct sophisticated analysis and make better business decisions
The domestic aviation industry has witnessed a remarkable surge in passenger traffic during the first eight months of 2023. According to the latest data analysis, the number of passengers carried by domestic airlines from January to August 2023 reached an impressive 1190.62 lakhs, marking a substantial inc
A function was organised in the Central Hall of Parliament on Tuesday to commemorate the rich legacy of the Parliament of India as the Members came together to bid adieu to the historical building before stepping into the New Building of Parliament. Prime Minister Narendra Modi, Lok Sabha sp
As politicians and policymakers make speeches at the United Nations during a high-level summit next week to assess the lack of progress on the 2030 Agenda and the Sustainable Development Goals (SDGs), people’s leaders representing some of the world’s most marginalised communities have come toge
The fourth G20 Global Partnership for Financial Inclusion (GPFI) meeting held in Mumbai during September 14-16 concluded with members agreeing to work towards the vision of universal financial inclusion under the new G20 Financial Inclusion Action Plan. Over the course of three days, discuss
Marginlands: Indian Landscape on the Brink By Arati Kumari-Rao Picador India, 256 pages, Rs 699 This monsoon, Him