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Letter to BS: Bimal Jalan-led committee to decide on RBI reserve transfer

A bank's profits and reserves have in them a large share of unrealised profits

Business Standard 

Bimal Jalan
Bimal Jalan (pictured), former RBI governor

This refers to “led committee to decide on RBI reserve transfer” (December 27). The government and the (RBI) should be complimented for agreeing on a panel to go into the contentious issue of the framework to determine capital reserves of a bank. Although there have been three panels that have gone into the matter, the issue has remained a subject of serious debates. As the committee comprises past governors/deputy governors who have also had innings in the government, they will be able to appreciate and accommodate the points of view of the government and the bank in a balanced manner.

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A bank’s profits and reserves have in them a large share of unrealised profits like revaluation of securities and gold. This, however, is unsatisfactory and not sound accounting practice. The (pictured) led committee would be expected to delve into these areas and suggest measures not only to enable the bank to transfer to the government its legitimate expectations by way of dividend, but also to retain within the bank a respectable amount of capital and real reserves that would project its worth so as to command the respect of international central banks and other financial institutions.

A further question is, whether any extra reserves found with banks should be used for capital support of public sector banks and if yes, what measures need to be adopted to prevent banks from looking for such support in future, instead of disciplining their own operations.

C V Subbaraman, Mysuru

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First Published: Sun, December 30 2018. 22:47 IST