The proposed committee on the Reserve Bank’s economic capital framework (ECF) is expected to identify Rs 100,000-300,000 crore ($ 14-42 billion or 0.5-1.6 per cent of GDP) as excess capital, says a report.
“Our stress tests below suggest a range of Rs 100,000 crore (from contingency reserve, or CR) to Rs 300,000 crore (CR plus currency and gold revaluation account or total cap),” Bank of America Merrill Lynch said in a note on the excess capital. “The RBI Act places no bar as long as the government maintains Rs 5 crore or $0.7 million of reserve fund under Section 46. While Section 47 enjoins the RBI to credit its annual surplus to the fisc, after provisions, it does not place any restriction on further transfers,” the report said.
The RBI central board meeting on October 19 decided to form a committee, which is likely to be announced later this week. Contingency reserves, at 7 per cent of book, are far higher than the BRICS (excluding India) average of about 2 per cent, it said. Revaluation reserves are also on the higher side relative to BRICS central banks. “Re 1 of depreciation adds Rs 40,000 crore or $ 5.5 billion.
Overall reserves, at 28.3 per cent of the RBI book, are well above the 18 per cent proposed by the RBI’s 2004 Usha Thorat group. Finally, how much can the RBI transfer? Our battery of stress tests suggests a range of Rs 100,000 crore (only from CR) to Rs 300,000 crore (CR plus revaluation reserves or total cap),” Bank of America Merrill Lynch said.
The government surplus with the RBI is Rs 167,500 crore ($ 23.5 billion or 0.9 per cent of GDP) as of March 2018. “This emanates from state government surpluses (parked in intermediate T-Bills), higher than expected small saving as well as deferred expenditures,” it said.