RBI’s committee reviewing economic capital framework

The RBI’s CRB is the country’s savings for a ‘rainy day’ (a financial stability crisis) which the central bank consciously maintained in view of its role as Lender of Last Resort (LoLR).

Reserve Bank of India’s (RBI) Governor Sanjay Malhotra on Friday said the central bank is currently reviewing the Economic Capital Framework (ECF), which is used to determine risk provisioning and surplus distribution by the central bank.

An expert committee led by Bimal Jalan, former RBI Governor, was set up in November 2018, to review the ECL framework of the RBI. In 2019, the RBI had adopted the recommendations of the expert committee on ECF. The committee had suggested that the RBI’s contingency risk buffer (CRB) should be maintained in a range of 5.5 per cent to 6.5 per cent of the central bank’s balance sheet.

The RBI’s CRB is the country’s savings for a ‘rainy day’ (a financial stability crisis) which the central bank consciously maintained in view of its role as Lender of Last Resort (LoLR).

“The Bimal Jalan committee has given 5.5 per cent to 6.5 per cent ratio of the balance sheet to be maintained as a buffer. We are at 6.5 per cent as March 31, 2024. The overall (ECF) framework is reviewed. Basis that, if the committee feels that there is any change, could be upwards or downwards…I am not suggesting that because of (global) uncertainties it needs to be increased…I am not suggesting that it (revision in the ratio) is under process, we will take a decision,” Malhotra said in the post-monetary policy press conference on Friday.

For the accounting year 2023-24, the RBI board had approved a record surplus transfer, or dividend, of Rs 2.11 lakh crore to the Central Government.

Economists believe that any revision in the contingency risk buffer could have an impact on the dividend transfers of the RBI to the government.

The current assessment of the ECF framework is being undertaken as the Bimal Jalan-led committee had recommended that the ECL framework should be periodically reviewed every five years.

“The Jalan committee recommendations were for the period June 2019 till June 2024. Internally, we are reviewing the whole thing and are seeing whether any changes are warranted,” RBI Deputy Governor M Rajeshwar Rao said.

Reserve Bank of India’s (RBI) Governor Sanjay Malhotra on Friday said the central bank is currently reviewing the Economic Capital Framework (ECF), which is used to determine risk provisioning and surplus distribution by the central bank.

An expert committee led by Bimal Jalan, former RBI Governor, was set up in November 2018, to review the ECL framework of the RBI. In 2019, the RBI had adopted the recommendations of the expert committee on ECF. The committee had suggested that the RBI’s contingency risk buffer (CRB) should be maintained in a range of 5.5 per cent to 6.5 per cent of the central bank’s balance sheet.

The RBI’s CRB is the country’s savings for a ‘rainy day’ (a financial stability crisis) which the central bank consciously maintained in view of its role as Lender of Last Resort (LoLR).

“The Bimal Jalan committee has given 5.5 per cent to 6.5 per cent ratio of the balance sheet to be maintained as a buffer. We are at 6.5 per cent as March 31, 2024. The overall (ECF) framework is reviewed. Basis that, if the committee feels that there is any change, could be upwards or downwards…I am not suggesting that because of (global) uncertainties it needs to be increased…I am not suggesting that it (revision in the ratio) is under process, we will take a decision,” Malhotra said in the post-monetary policy press conference on Friday.

For the accounting year 2023-24, the RBI board had approved a record surplus transfer, or dividend, of Rs 2.11 lakh crore to the Central Government.

Economists believe that any revision in the contingency risk buffer could have an impact on the dividend transfers of the RBI to the government.

The current assessment of the ECF framework is being undertaken as the Bimal Jalan-led committee had recommended that the ECL framework should be periodically reviewed every five years.

“The Jalan committee recommendations were for the period June 2019 till June 2024. Internally, we are reviewing the whole thing and are seeing whether any changes are warranted,” RBI Deputy Governor M Rajeshwar Rao said.