The Reserve Bank of India has constituted a six membered expert committee to decide on appropriate size of RBI’s reserves. The committee will be headed by the Former Governor Bimal Jalan with the Former Secretary Rakesh Mohan at the vice chairmanship. The Expert Committee on the economic capital framework will have to give it’s framework report 90 days from it’s first meeting.
The panel will also include the Economic Affairs Secretary Subhash Chandra Garg and RBI Deputy Governor N S Vishwanathan. Also the members of the Central Board of RBI Bharat Doshi and Sudhir Mankad will be the other two members of the expert committee on Economic Capital Framework.
This after the bank’s central board proposed the panel’s formation following a dispute between then Governor Urjit Patel and the government over that and various other issues, which eventually led to his departure.
“The terms of reference to be considered by the Committee constitute reviewing the status, need and justification of various provisions, reserves and buffers along with reviewing global best practices followed by the central banks in making assessment and provisions for risks which central bank balance sheets are subject to statutory mandate under section 47 of the RBI Act that the profits of the RBI shall be transferred to the Government, after making provisions ‘which are usually provided by the bankers”, reported the statement.
Also the Expert Committee will head to suggest an adequate level of risk provisioning that the RBI needs to maintain with the main focus over proposing a suitable profits distribution policy taking into account all the likely situations of the RBI, including the situations of the central bank holding more or less provisions than required citing public policy mandate of the RBI, including financial stability considerations, it further reported.
Former RBI governor Raghuram Rajan said, “The transfer of excess reserves to the government may lower the central bank’s rating.” Meanwhile the former chief economic advisor Arvind Subramanian recently said, “If there are excess reserves, even in order to put it into recapitalising the banks, there must be fundamental governance reforms, otherwise it will be throwing good money after bad into a black hole.” He had first mooted the transfer of excess reserves in the FY17 Economic Survey.