The Reserve Bank of India (RBI) on Wednesday formed an expert committee on economic capital framework led by former RBI Governor Bimal Jalan to suggest the amount of reserves it needs to keep, handing over the balance to the government. The committee will file its report within 90 days from the date of its first meeting. 

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"As decided by the Central Board of RBI in its meeting held on November 19, 2018, the RBI, in consultation with the Government of India, has today (Wednesday) constituted an expert committee to review the extant Economic Capital Framework of the RBI," the bank said. The issue had become a bone of contention between the RBI and the government when the latter suggested that the central bank has been keeping reserves much larger than any other central bank and should transfer a significant amount to the government.

The six-member committee would "suggest an adequate level of risk provisioning that the RBI needs to maintain" and "determine whether the RBI is holding provisions, reserves and buffers in surplus/ deficit of the required level of such provisions, reserves and buffers". It will also "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", the bank said in a statement.

The committee, including former RBI Deputy Governor and former Economic Affairs Secretary Rakesh Mohan as its Vice Chairman, will also look into other related matters like treatment of surplus reserves created out of realised gains, if it decides that the RBI should hold it.

The panel will review status, need and justification of various provisions, reserves and buffers presently provided for by the RBI in context to global best practices followed by other central banks while provisioning for risks the central bank balance sheets are subject to.

Other panel members are Economic Affairs Secretary Subhash Chandra Garg, RBI Deputy Governor N.S. Vishwanathan and two RBI Board Directors Bharat Doshi and Sudhir Mankad.