The Bimal Jalan Committee on treatment of Reserve Bank of India’s reserves is likely to recommend a transfer of a specified quantum of RBI reserves to the government over two or three tranches over the next few years, an official in the Finance Ministry said. The committee will submit its report in 10-15 days, the official said, following the final meeting of the committee on Wednesday.
However, there is not likely to be consensus in the committee over this decision, he added.
The government and the RBI have been at loggerheads over the issue of how much of the central bank’s reserves can be transferred to the Centre.
The government view has been that the RBI’s reserves constitute 27% of its total assets, a much higher proportion than the global norm of 14%.
As a means to reach a resolution on the issue, the central bank, in December, constituted a committee under former RBI Governor Bimal Jalan.
The committee was to keep in mind the statutory mandate under the RBI Act that the profits of the RBI be transferred to the government after it made provisions ‘which are usually provided by the bankers’.
Against this background, the committee was tasked with reviewing the status, need, and justification of the various provisions, reserves and buffers currently provided for by the RBI, and also review the global best practices followed by central banks in making provisions for the risks that central bank balance sheets are subject to.
The committee was also tasked with suggesting an “adequate level” of risk provisioning that the RBI should maintain, and determining whether the RBI’s current reserves were surplus of this or lower. If they are surplus, then the committee also had to come up with a suitable profits distribution policy.
Fiscal deficit target
The treatment of the RBI’s reserves is a matter of great importance at a time when the central government has committed to a fiscal deficit target of 3.3% in financial year 2019-20, and a further tightening to 3% the next year.
With tax revenues falling short of expectations, any off-Budget receipts from the RBI will be welcomed by the Centre.