Ex-RBI guv Bimal Jalan to head panel on setting central bank reserves' size

Former RBI governor Bimal Jalan will be the committee's chairman and Rakesh Mohan, a former deputy governor, deputy chairman

The Reserve Bank of India (RBI) has formed a six-member expert committee to study its economic capital framework: a move that could prompt a rethink of what constitutes adequate capital reserves for the central bank.

Former RBI governor Bimal Jalan will be the committee’s chairman and Rakesh Mohan, a former deputy governor, will be the deputy chairman, said the central bank in a statement.

Bharat Doshi and Sudhir Mankad, who are directors in RBI’s central board; NS Vishwanathan, a deputy governor at the central bank, and economic affairs secretary Subhash Chandra Garg are other members of the committee

The committee will decide whether the central bank holds provisions, reserves and buffers in surplus or deficit of the required levels. It will give a report within 90 days of its first meeting.

“[It would] 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,” said the RBI statement.

The RBI needs adequate capital reserves for monetary policy operations, currency fluctuation, possible fall in value of bonds, sterilisation costs related to open-market operations, credit risks arising from the lender of last resort function and other risks from unexpected increase in its expenditure.

But for weeks now, government officials have been pressuring the RBI to accede to a range of demands, from easing lending curbs to handing over surplus reserves to the government.