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Pressure on RBI to transfer reserve endangers economic stability: AIBEA

The association's chief says RBI is now maintain the reserve at the lower band of 5.5% instead of at the higher band of 6.5%, leaving little room for it to meet unforeseen contingencies

Gireesh Babu  |  Chennai 

RBI
A Reserve Bank of India (RBI) logo is seen at the gate of its office in New Delhi. Photo: Reuters

The pressure on to transfer a staggering sum of Rs 1.76 trillion to the government is fraught with risks to the economic stability of the country and is therefore avoidable, according to the All India Bank Employees Association.

C H Venkatachalam, general secretary, said, "it is surprising that when our country’s economy is already facing turbulence and serious slowdown, instead of taking measures that will boost it, efforts are being taken which will further precipitate economic instability."

He said, "was specifically created as an independent institution mandated with the responsibility of ensuing the stability in the economy, besides monitoring external stability, monetary stability and money supply. is a totally autonomous body and is not expected to be an extension counter of the Ministry or the Government."

Venkatachalam added that the apex bank has very specific tasks to perform, and could do without interference. But what is happening now is a matter of serious concern where the RBI is apparently forced to bow to the wishes of the Government to release its funds to bridge fiscal deficit.

RBI’s Reserves are meant to protect the various risks to the economy, Venkatachalam said, adding that the reserves are, in fact. not real reserves, and depend on the market fluctuations in gold price, dollar rate and rate of interest on bonds. It is a notional gross value and is actually unrealised surplus. This surplus cannot be separately extracted, he asserted.

Venkatachalam added that even while the surplus in the contingency fund can be transferred to the government, what has been done by RBI now is to maintain the Reserve at the lower band of 5.5 per cent instead of at the higher band of 6.5 per cent, leaving little room for it to meet unforeseen contingencies. This is the lowest level that the RBI has maintained thus far under the fund and lowers the apex bank's flexibility to manoeuvre in future.

First Published: Wed, August 28 2019. 15:52 IST
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