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What is a Bimal Jalan committee?
The Reserve Bank of India (RBI) in November 2018 had constituted a six-member committee, chaired by former governor Dr Bimal Jalan, to review the current economic capital framework (ECF), after the Ministry of Finance asked the central bank to follow global practices.
The ECF is a methodology for determining the right level of risk provisions and profit distribution to be made under Section 47 of the RBI Act, 1934.
The ECF is a methodology for determining the right level of risk provisions and profit distribution to be made under Section 47 of the RBI Act, 1934.
What did the Bimal Jalan Committee recommend?
1. According to the Committee, a better distinction between the two components of RBI's economic capital, realised equity and revaluation balances, was needed. The realised equity can be used as a buffer in meeting losses, whereas the revaluation balances will be used only during market risks as they are unrealised valuation gains and cannot be distributed.
2. The Committee has recommended the adoption of Expected Shortfall (ES) under stressed conditions for measuring the RBI’s market risk and asked to adopt a target of ES 99.5 per cent confidence level.
3. It also asked to maintain Contingent Risk Buffer (CRB) within 6.5 per cent and 5.5 per cent of RBI's balance sheet.
4. The Jalan Committee recommended a surplus distribution policy that follows the realised equity maintained by the RBI.
5. The panel also suggested that the RBI’s ECF should be reviewed every five years.
On August 2019, the Central Board of the RBI, chaired by Governor Shaktikanta Das, finalised the RBI’s accounts for 2018-19 using the revised framework to determine risk provisioning and surplus transfer. According to the reports, the RBI had over Rs 9 trillion of surplus capital with it.
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