Jalan panel norms to apply to current, future RBI reserves

The Bimal Jalan panel examining the RBI's policy of distributing its reserves may suggest a guiding principle for surplus transfers as well as a specific timeframe for its application while keeping in mind the public policy mandate of the RBI, an official source said on Friday.

The Jalan panel is expected to submit its report later this month.

A senior Finance Ministry source said that the central bank's profit distribution policy as suggested by the Jalan committee report, if accepted, will be applicable on the current as well as future surplus reserves of the RBI.

These surplus reserves account for about 28 per cent of the central bank's total assets.

As per the ministry source, the committee may also look at past unrealised gains, alongwith the contingency reserves, and consider the extent of reserves the Reserve BanK of India (RBI) should hold and transfer to the government.

While many central banks hold 2-3 per cent of their total assets as contingency fund, for the RBI the quantum on this account stands at 7.05 per cent.

Last year, the Ministry sought a transfer a surplus of Rs 3.6 lakh crore, which amounts to more than a third of the RBI's total reserves worth Rs 9.59 lakh crore' leading to a series of confrontations between the government and the central bank.

The government believes that, when compared with global central banks, the RBI holds much higher level of total capital as a percentage of its total assets (at about 28 per cent).

Countries, including the US, the UK, Argentina, France and Singapore maintain much lower capital reserves as a percentage of total assets, while for countries such as Malaysia, Norway and Russia the reserves are much higher than India.

For the central bank's accounting year ending June 2018, the RBI had total reserves of Rs 9.59 lakh crore, comprising mainly of currency and gold revaluation account (Rs 6.91 lakh crore) and contingency fund (Rs 2.32 lakh crore).

The government has claimed that RBI has been extremely risk averse and conservative in its assessment of capital buffers.