Bimal Jalan to head panel to decide on RBI cash reserves: Former central bank governor enjoys govt support, but committee to have final say

The Reserve Bank of India (RBI) on Wednesday formed an expert committee on economic capital framework led by former RBI governor Bimal Jalan to determine the amount of reserves it needs to keep and the balance it can hand over to the government.

The Narendra Modi government has been insisting on a new policy for reserves held by the RBI and the distribution of dividends. Heated discussions over revamping the economic capital framework was one of the key reasons behind the sudden resignation of the former RBI Governor Urijit Patel earlier this month.

Jalan will lead a six-member committee which will review the status, need and justification of various provisions, reserves and buffers presently provided for by the RBI, the central bank said in a statement.

Currently, there is no agreed formula between the government and the RBI on the distribution of dividends.

 Bimal Jalan to head panel to decide on RBI cash reserves: Former central bank governor enjoys govt support, but committee to have final say

File photo of Bimal Jalan, former governor, RBI
Reuters

The Reserve Bank of India (RBI) has massive Rs 9.59 lakh crore reserves and the government, if reports are to be believed, wants the central bank to part with a third of that fund -- an issue which along with easing of norms for weak banks and raising liquidity—hasbrought the two at loggerheads in recent weeks.

Jalan's views on the issue

According to Moneycontrol, Jalan has maintained that the central bank must be accountable to the government. In an interview, commenting on whether RBI contingency reserves could be used by the government, Jalan had said it would "depend on the urgency and the possible impact of the contingency fund on the financial sector."

In October, the government had for the first time-ever used a provision of law to ask the RBI for resolution of differences between them on stressed loans in the power sector and other issues. Section 7 of the RBI Act gives special powers to the government to issue directions to the Reserve Bank governor on issues of public interest.

Commenting on whether such a provision should exist, Jalan in an interview with The Hindu Business Line in November had said that "there is no harm in having it."

Expressing his view on RBI's autonomy, Jalan had said that "within a country the ultimate authority is with Parliament as the legislator, government is the executive, and then the justice system— the final authority to give a judgment."

Replying to a question on whether RBI's capital reserves could be touched, Jalan told CNBC-TV18, "I don’t think you should put it as capital being touched. I think it’s like any other institution, the RBI when it has a surplus cash or whatever they may transfer it to the government in terms of dividends as you have seen. It has capital, it has high reserves, so it can transfer to the government as it wishes in consultation with the government."

The committee headed by Jalan has been given 90-days from its first meeting to complete the report.

In November, the government had suggested Jalan's name while the RBI had proposed the name of its former deputy governor Rakesh Mohan to chair the panel. Mohan has been appointed as vice chairman of the committee, the RBI said in a statement on Wednesday. Members of the committee include Bharat Doshi, director, RBI board; Sudhir Mankad, director, RBI board; Subhash Chandra Garg, Economic Affairs Secretary; NS Vishwanathan, RBI deputy governor.

Soon after the announcement, Jalan, who is seen as enjoying the support of the government, said he would be able to comment on a timeline once he has reviewed the terms of the panel.

Having said that, Jalan's views alone will not matter. The final say will be by the committee.

--With inputs from agencies

 

Updated Date: Dec 27, 2018 12:58:00 IST