Jalan Panel wants transfer of RBI’s surplus reserves over 3-5 years

NEW DELHI: A high-level committee set up by the Reserve Bank of India (RBI) on its economic capital framework (ECF) has recommended that surplus reserves held by the central bank be transferred to the government in tranches over three to five years. The recommendations are not unanimous with finance secretary Subhash Chandra Garg having submitted a dissent note, said an official familiar with the development.

The six-member committee headed by former RBI governor Bimal Jalan was tasked with examining the central bank’s requirements on provisions, reserves and buffers. That would determine how much of the reserves could be transferred to the government.

North Block has been pressing RBI to follow global best practices and transfer more of its surplus to the government. The finance ministry has contended that the buffer of 28% of gross assets maintained by the central bank is well above the global norm of around 14%. The official didn’t reveal the amount determined by the committee for transfer to the government.


Periodic Review of ECF
The committee, which held its last meeting on Wednesday, will submit its final report in 15 days to the RBI, said a top official. It had been set up in December following differences over various issues between the government and the central bank that culminated in the departure of former governor Urjit Patel, who was succeeded by Shaktikanta Das. The Jalan committee has also suggested a periodic review of the ECF to decide the RBI’s appropriate level of reserves, said the person cited above.

The government has been seeking the transfer of a substantial chunk of RBI’s ?9.6 lakh crore reserves built up over the years. Most of the RBI’s income comes from interest earned on foreign reserves invested overseas and that on securities in India.

ET had earlier reported that the finance ministry may not make windfall gains from the central bank surplus prior to the budget, which was announced July 5, and that the panel was veering around to the view that the transfer should be spread over a period of time. The government has budgeted ?90,000 crore in dividends from the RBI in the current financial year against ?68,000 crore in the last one. But this does not include any transfers from the RBI’s surplus.


Any extra capital will help the government meet the fiscal deficit target for the current year, which has been set at 3.3% of gross domestic product (GDP).

The six-member panel was set up on December 26 last year by the RBI to review its ECF following several exchanges between the central bank and the finance ministry on the issue. The government had invoked powers under the rarely used Section 7 of the RBI Act in October, seeking consultations with the central bank on 12 points, including the ECF.

The committee’s mandate included suggesting an adequate level of risk provisioning for the central bank and to propose a suitable policy to determine the distribution of any excess taking into account all likely situations.

The matter of the ideal level of RBI’s reserves was examined by three committees previously — one headed by V Subrahmanyam in 1997, by Usha Thorat in 2004 and by YH Malegam in 2013.

The Jalan panel was initially mandated to submit its report to the RBI within 90 days, but was subsequently given a threemonth extension. The panel has been further entrusted with the task of reviewing the best practices followed by central banks worldwide in making assessments and provisions for risks. Asked about submission of the report to the RBI, the official said a date will be sought formally. The other key members of the committee included former RBI deputy governor Rakesh Mohan, who was vice chairman; finance secretary Garg; RBI deputy governor NS Vishwanathan and two RBI central board members —Bharat Doshi and Sudhir Mankad.