The RBI board on 26th August 2019, in its meeting, accepted the recommendation of a high-level panel headed by its former Governor Bimal Jalan. The board has decided to transfer a whopping ₹1.76 lakh crore to the Central Government. This will include the interim dividend of ₹28,000 crore paid in February. The move is likely to address the uncertain fiscal situation of the government to a great extent.
The ₹1.76 lakh crore includes the central bank’s 2018-19 surplus of ₹1.23 lakh crore and ₹52,637 crore of excess provisions identified as per the revised Economic Capital Framework (ECF) adopted at the Board meeting.
The RBI states that as the financial resilience was within the desired range, the entire 2018-19 net income of ₹1.23 lakh crore has been transferred.
Guided by Bimal Jalan panel:
The RBI had formed a committee headed by former Governor Bimal Jalan to review its economic capital framework and suggest the quantum of excess provision to be transferred to the government. The committee was formed after a demand from the government for more money. The RBI Board has accepted all the recommendations of the Jalan committee.
- The panel recommended a clear distinction between the two components of economic capital – realized equity and revaluation balances. It was recommended that realized equity could be used for meeting all risks/ losses as they were primarily built up from retained earnings, while revaluation balances could be reckoned only as risk buffers against market risks as they represented unrealized valuation gains and hence they were not distributable.
- The economic capital framework committee also recognised that RBI’s provisioning for monetary, financial and external stability risks is the country’s savings for a ‘rainy day’, which has been consciously maintained with the RBI in view of its role as the Monetary Authority and the Lender of Last Resort.
Contingent Risk Buffer (CRB): The risk provisioning made primarily from retained earnings is cumulatively referred to as the Contingent Risk Buffer (CRB) and has been recommended to be maintained within a range of 6.5% to 5.5% of the RBI’s balance sheet. The CRB comprises 5.5 to 4.5% for monetary and financial stability risks and 1.0% for credit and operational risks.
As per the ‘Surplus Distribution Policy’, as recommended by the committee, only if realized equity is above its requirement, the entire net income will be transferable to the Government.