Bimal Jalan-led six-member panel to decide on RBI reserves transfer

The Reserve Bank of India (RBI) on Wednesday constituted an expert committee headed by former governor Bimal Jalan to review its economic capital framework, and whether the central bank needs to hold as much reserves as it currently does. 

Former deputy governor Rakesh Mohan will be vice-chairman of the six-member committee, which also includes RBI central board directors Bharat Doshi and Sudhir Mankad, Economic Affairs Secretary Subhash Chandra Garg and RBI deputy governor N S Vishwanathan.

It was decided in the November 19 board meeting of the RBI that an expert committee would be formed to examine if the central bank’s reserves were adequate, going by the global standards, and if in excess, how much money could be transferred to the government. This board meeting had taken place after the government’s persistent demand that part of the RBI's excess reserves be transferred back, either to recapitalise banks or for other expenditures. 

According to the government, most central banks keep 13-14 per cent of their assets as reserves, but in the case of the RBI, it is 27 per cent. Therefore, the implicit demand was to have a reserve transfer of Rs 3-4 trillion. However, the RBI, under Urjit Patel, contested transfer of reserves, and therefore the need of the committee arose.

(Top Left-to-right: Bimal Jalan,Former RBI governor; S C Garg, Economic Affairs Secretary; Bharat Doshi, Member of RBI’s central board; Bottom left-to-right: N S Vishwanathan, RBI dy. Governor; Sudhir Mankad, Member of RBI's central board; Rakesh Mohan)

The total reserves with the RBI stand at Rs 9.6 trillion at the end of FY18, up from Rs 8.38 trillion in FY17, while its foreign assets are worth Rs 26.4 trillion (FY18), up from Rs 23.7 trillion in FY17. 

Accordingly, the terms of reference of the committee, according to the RBI’s latest circular, would be to “review status, need and justification of various provisions, reserves and buffers presently provided for by the RBI,” and “review global best practices followed by the central banks in making assessment and provisions for risks which central bank balance sheets are subject to”.

The committee would also suggest an adequate level of risk provisioning that the RBI needs to maintain, determine whether the RBI is holding provisions, reserves and buffers in surplus / deficit of the required level of such provisions, reserves and buffers, propose a suitable profits distribution policy taking into account all the likely situations of the RBI, including the situations of holding more provisions than required and the RBI holding less provisions than required, and “any other related matter including treatment of surplus reserves, created out of realised gains, if determined to be held”.

The last point says old reserves would be evaluated by the committee, even as sources had told Business Standard after the November 19 meeting that accumulated reserves won’t be touched, but the committee would examine future payouts.

According to the RBI communiqué, the expert committee will submit its report within 90 days from the date of its first meeting.