RBI decides not to touch valuation gain

The board of Reserve Bank of India, under new governor Shaktikanta Das, has set the basic rule that would determine future payout by the central bank to the government. At its last meeting, the board is learnt to have recorded the decision that the central bank will not touch the 'unrealised gains' in its balance sheet for dividend distribution to its sole shareholder, the government.

"Unrealised gain is valuation gain in currency and gold. To tap this, it has to be realised or converted in the market. This is now ruled out... this has been minuted," a person familiar with the matter told ET.

Of RBI's total reserves of 10.46 lakh crore, about 6.9 lakh crore is recorded under 'currency and gold revaluation account' while 2.32 lakh crore is 'contingency fund'.


The quantum of dividend to the government and the sharing of any surplus over and above RBI's economic capital has been a contentious issue between RBI and the government - reviving the old question on what's the optimum capital that RBI should maintain.

A high-profile committee, headed by former RBI governor Bimal Jalan, has been constituted to look into RBI's economic capital framework.

Under the circumstances, the central bank's decision partly defines the terms of reference of the committee. Its findings would indicate whether RBI has surplus capital that can be distributed to the government, whether the central bank can dip into contingency reserves for payout, and to what extent RBI needs to add to its contingency reserves before arriving at the dividend number in the current financial year as well as in the future. While the RBI Act does not restrict the bank from sharing a slice of its contingency fund, the board may have to pass a resolution for it to be endorsed by the auditor, said a chartered accountant who has handled RBI audit in the past.

Unlike regulatory capital of financial institutions, the 'economic capital' of a central bank is calculated using mathematical models that consider the nature of risks it may have to grapple with. While some studies have pointed out that RBI's capital level is one of the highest in the world - way above large central banks like Bank of England and US Federal Reserve - there are others who believe that RBI needs to preserve a higher capital due to India's current account deficit and absence of a reserve currency (like US dollar or Euro).

Financial Inclusion
RBI is likely to set up a new committee that would look into the future of financial inclusion and recommend ways to overcome the shortcomings. Sources said that former UIDAI chairman and Infosys co-founder Nandan Nilekani may be approached to head the proposed committee.

"The use of technology to touch the unbanked, bank account portability, and issues like open banking may be considered... RBI's focus has largely been credit delivery but more work may be required on the savings front," said another person.

A recent report of Niti Aayog said that while the government has launched many flagship schemes to promote financial inclusion and provide financial security to empower the poor, there are constraints due to lack of financial literacy among low-income households and small informal businesses, and high cost of operations of traditional banking model. According to the government think tank, excessive regulatory requirements on products and market entry, and conservative regulatory approach to new technologies are the other impediments.