After cold war between govt and RBI, panel formed to look into reserves; here’s all you need to know

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Updated: December 27, 2018 2:48:52 PM

The panel, headed by Bimal Jalan, will review and suggest the right level of RBI reserves needed for provisioning risks and submit its report in 90 days.

The panel, headed by Bimal Jalan, will review and suggest the right level of RBI reserves needed for provisioning risks and submit its report in 90 days.The panel, headed by Bimal Jalan, will review and suggest the right level of RBI reserves needed for provisioning risks and submit its report in 90 days.

The government wants the Reserve Bank of India (RBI) to transfer more reserves. The central bank, on the hand, wants to keep more capital reserves for unforeseen risks. And that has led to a really long cold war between the centre and the regulator, which recently reached its peak and led to the formation of a panel to look into it.

The RBI has appointed former governor Bimal Jalan as the chairman of the panel and former deputy governor Rakesh Mohan as the vice-chairman. Other members are RBI central board directors Bharat Doshi and Sudhir Mankad, DEA Secretary Subhash Chandra Garg, and RBI deputy governor NS Vishwanathan.

The panel will review and suggest the right level of reserves needed for provisioning risks and submit its report in 90 days. The panel will also review if RBI is indeed holding surplus reserves.

Earlier, the government had reportedly asked for Rs 3.6 lakh crore from the RBI, to which the central bank said no.

Amid a long list of contentious issues, the RBI’s capital transfer was, arguably, the most debated one; many seeing it as an attempt to raid the central bank’s balance sheet and many others believing that the RBI was indeed too sitting on excessive reserves.

And almost everyone was of the opinion that the way to resolve this issue was not by arm twisting the RBI by invoking the never-used Section 7 of the RBI Act but looking into the pros and cons of both arguments and make an informed decision.

After a month-long showdown between the RBI and the government over several issues in the public, the two decided to head into a calmer board meeting on November 19, in which it was decided that a committee will be formed to look into the matter.

However, soon after the meeting on December 11, Urjit Patel, who was not in favour of higher reserve transfer to the government, resigned from the position of RBI governor citing personal reasons. Former top bureaucrat Shaktikanta Das, who worked closely with the government during demonetisation, was appointed as the governor in less than 24 hours.

In his very first media briefing, he acknowledged that it was the government that was responsible for running the country, he refused to delve into the issue to capital reserves.

RBI Reserves: Break-up

  • Capital and Other Reserves: Rs 6,733 crore
  • Contingency Fund: Rs 2.5 lakh crore
  • Currency and Gold Revaluation Reserves: Rs 6.71 lakh crore
  • Total Reserves: Rs 9.7 lakh crore

The RBI currently has total reserves of Rs 9.7 lakh crore, which is made up of 27% assets in the form of gold and currency. Experts have warned that using the RBI’s capital reserves for meeting fiscal deficit would be a bad idea.

Finance Minister Arun Jaitley recently said that the government does not need the RBI’s reserves to for offsetting fiscal slippage.

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