RBI seeks govt nod for bigger contingent risk buffer band after ECF review

Board to meet on May 23 to decide transferable surplus based on new range

The Reserve Bank of India’s (RBI’s) central board, which met las week and reviewed the economic capital framework (ECF), has sought the government’s approval to expand the range of the contingent risk buffer (CRB), multiple sources aware of the development told Business Standard.

  The buffer is at 5.5-6.5 per cent of the RBI’s balance sheet, which is in accordance with the recommendations of the Bimal Jalan committee. The surplus, which the RBI transfers to the government, depends on how much risk buffer it wants to

maintain. A higher risk buffer would mean a lower amount of transferable surplus and vice versa.

  “In the last five years, the framework, which was recommended by the Jalan committee, has largely worked well,” said a source. “Given the kind of vulnerabilities and fluctuations we have, we are trying to see how a larger range may be thought of,” the source added.

 

The board will again meet on May 23 to approve the accounts for FY25 and decide on the transferable surplus, based on the new range, following approval from the Centre. 

The transferable surplus for any year is arrived at on the basis of the ECF adopted by the central bank in 2019, in accordance with recommendations of the expert committee, chaired by former RBI governor Bimal Jalan. 

The committee recommended that the framework needed to be reviewed every five years. 

During accounting years 2018-19 to 2021-22, owing to the prevailing macroeconomic conditions and the pandemic, the board had decided to maintain the CRB at 5.50 per cent of the balance sheet to support growth and overall economic activities. 

With revival in economic growth in 2022-23, the CRB was increased to 6.00 per cent. As the economy remains robust and resilient, the board decided to increase the CRB further to 6.50 per cent for 2023-24. 

For 2023-24, the board approved the highest ever surplus transfer of ₹2.11 trillion to the central government. The balance sheet increased by ₹7.02 trillion, or 11.08 per cent, to ₹70.48 trillion in 2023-24. 

Economists said there might be a new record for 2024-25. A Business Standard poll showed a surplus transfer ranging from ₹2.2 trillion to ₹3.1 trillion. The amount may swell if the central bank maintains the CRB at the lower end of the new range.