RBI accepts Bimal Jalan panel report, approves Rs 1.76 lakh crore transfer to government

The Reserve Bank of India (RBI) on Monday decided to transfer Rs 1.76 lakh crore in dividend and surplus reserve to the government. The decision was taken after the RBI board accepted the recommendation of a high-level panel headed by its former Governor Bimal Jalan on transfer of excess reserves to the government.

The board of central bank decided to transfer a sum of Rs 1,76,051 crore to the Government of India comprising Rs 1,23,414 crore of surplus for the year 2018-19 and Rs 52,637 crore of excess provisions identified as per the revised Economic Capital Framework (ECF), the RBI said in a statement.

The committee has since submitted its report to the RBI Governor. The committee's recommendations were based on the consideration of the role of central banks' financial resilience, cross-country practices, statutory provisions and the impact of the RBI's public policy mandate and operating environment on its balance sheet and the risks involved.

The committee's recommendations were guided by the fact that the RBI forms the primary bulwark for monetary, financial and external stability.

Hence, the resilience of the RBI needs to be commensurate with its public policy objectives and must be maintained above the level of peer central banks as would be expected of a central bank of one of the fastest growing large economies of the world.

The receipts from the RBI will give a fillip to the government's efforts to boost the economy from a five-year low. Finance Minister Nirmala Sitharaman had last week announced a slew of measures to prop up growth even as the government tried to stick to the target of keeping fiscal deficit at 3.3 per cent of the GDP. The additional cash will now give the Centre more headroom for stimulating the economy.

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.

As a result, the RBI in its crucial November 2018 board meeting decided to form a committee to review the economic capital framework (ECF) for the Reserve Bank.

However, Patel quit before the committee could be formed. Subsequently, the panel was constituted in consultation with new RBI Governor Shaktikanta Das on December 26.

Since 2013-14, the RBI has been paying 99 per cent of its disposable income to the government, which is battling to rein in deficits.

As far as the dividend is concerned, the statement said "as financial resilience was within the desired range, the entire net income of Rs 1,23,414 crore for the year 2018-19, of which an amount of Rs 28,000 crore has already been paid as interim dividend, will be transferred to the Government of India (in March 2019)".

The government will get a higher dividend Rs 95,414 crore during the current fiscal as against the estimate of Rs 90,000 crore.

The Union Budget 2019-20 had pegged dividend or surplus of the RBI, nationalised banks and financial institutions at Rs 1.06 lakh crore up from Rs 74,140.37 crore realised in the previous fiscal.

In 2017-18, Rs 40,659 crore was transferred in dividend to the government.

During the year (2016-17) of demonetisation, the RBI had transferred Rs 30,659 crore, less than half of the Rs 65,876 crore it had paid in 2015-16.

The Reserve Bank follows July-June financial year and usually distributes the dividend in August after annual accounts are finalised.

The RBI statement citing the Jalan panel report said it has suggested a very robust ECF mechanism and as a result the board adopted a target of Expected Shortfall (ES) of 99.5 per cent Confidence Level (CL) keeping in view the macroeconomic stability requirements.

"While central banks are seen to be adopting ES at 99 per cent confidence level (CL), the Committee has recommended the adoption of a target of ES 99.5 per cent CL keeping in view the macroeconomic stability requirements," it said.

(With PTI inputs)