Former RBI Governor YV Reddy gives thumbs up to Bimal Jalan’s capital transfer formula with caveats

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Published: September 6, 2019 6:33:14 PM

Even as the RBI successfully analysed the optimal capital, adopting higher option as capital buffer may have reduced its confidence,said a former central bank governor.

npa, insolvency and bankruptcy code, nclt, rbi, reserve bank of indiaThe central bank board gave its approval for transferring Rs 1,76,051 crore comprising Rs 1,23,414 crore of surplus for the year 2018-19 and Rs 52,637 crore of excess provisions identified, according to the revised Economic Capital Framework (ECF). 

Even as the RBI successfully analysed the optimal capital, adopting higher option as capital buffer may have reduced its confidence,said a former central bank governor. The RBI would have been better placed keeping the capital level at 6.5 per cent as against 5.5 per cent, YV Redddy said at an event. The RBI last month the transfer of record Rs 1.76 lakh crore dividend and surplus reserves to the government. The central bank board gave its approval for transferring Rs 1,76,051 crore comprising Rs 1,23,414 crore of surplus for the year 2018-19 and Rs 52,637 crore of excess provisions identified, according to the revised Economic Capital Framework (ECF). The RBI gave nod to keep the contingency fund at the lower band of the desired 5.5-6.5 per cent of the balance sheet.

The Modi government and the RBI under its previous governor Urjit Patel had been at loggerheads over the optimum level of surplus capital with the central bank. On recent announcement made by the Finance Minister Nirmala Sitharaman on the public sector bank mergers, he said that the move is crucial. He, however, also said that if the problem in the banking space is about governance, it can’t be solved by merely merging two banks. Adding, he said that the purpose of setting economies of scale, largely operational efficiencies could be achieved by the merger.

Also read: $5 trillion economy: How India can reach the goal; Sanjeev Sanyal, others explain

Speaking on the ongoing global trade war, Reddy said at the event telecast by CNBC TV18: “My own feeling is that the trade war is only the tip of the iceberg and there are more fundamental issues at stake.”

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