A newly-constituted panel under former RBI governor Bimal Jalan on Tuesday held its first meeting to decide on an appropriate economic capital framework that would govern the proper size of reserves that the central bank must maintain and the dividend it should pay to the government.
A newly-constituted panel under former Reserve Bank of India (RBI) governor Bimal Jalan on Tuesday held its first meeting to decide on an appropriate economic capital framework (ECF) that would govern the proper size of reserves that the central bank must maintain and the dividend it should pay to the government. The panel will likely submit its report in April.
The six-member panel’s task is to review best practices followed by central banks globally in making provisions for risks. The panel is expected to suggest a suitable profit distribution policy, factoring in all the likely situations of RBI, including the situation of holding more provisions than required.
The finance ministry and the RBI under previous governor Urjit Patel were locked in a tussle over the ECF and the appropriate reserves the central bank must hold on to.
The ministry held that the buffer of 28% of gross assets maintained by the RBI is much higher than the global norm of around 14%. Consequently, the RBI board in its meeting on November 19, 2018 decided to form a panel to examine the ECF.
Apart from Jalan, the committee also includes former RBI deputy governor Rakesh Mohan, economic affairs secretary Subhash Chandra Garg, RBI deputy governor NS Vishwanathan and two members of the current RBI central board — Bharat Doshi and Sudhir Mankad.
In the past, the issue of the ideal size of RBI’s reserves was reviewed by three committees, including those by V Subrahmanyam and YH Malegam.