In a historic decision, the RBI decided to transfer its record high surplus reserve of Rs.1,76,051 crore to the government comprising of ₹1,23,414 crore of surplus for the year 2018-19 and ₹52,637 crore of excess provisions identified as per the revised Economic Capital Framework (ECF).
The recommendation came from the Expert Committee to Review the Extant Economic Capital Framework of the Reserve Bank of India chaired by Mr Bimal Jalan (Former Governor, RBI). The Central Board of RBI accepted and adopted all the recommendations of the Committee and finalized the RBI’s accounts for 2018-19 using the revised framework to determine risk provisioning and surplus transfer.
The key takeaway of the recommendations:
i) Realized Equity: The required realised equity level was recommended to be reduced from 6.8 per cent of the balance sheet to a range of 6.6% to 5.5% where the Central Board chose to maintain it at 5.5.% resulting in excess reserve provisions of Rs. 52,637crore.
ii) Economic Capital Levels: Applying the recommendations of the committee allows the RBI’s economic capital levels as on June 30, 2019 to lie within the range of 24.5 per cent to 20.0 per cent of balance sheet (depending on the level of realized equity maintained and availability of revaluation balances), the economic capital as on June 30, 2019 stood at 23.3 per cent of balance sheet which was within the desired range. Thus, the entire net income of ₹1,23,414 crore for the year 2018-19, of which an amount of ₹28,000 crore has already been paid as an interim dividend and already been accounted by the budget in the previous financial year, will be transferred to the Government of India.
Though with the transfer of excess surplus the fiscal position improves extraordinarily, the impact on the economy of this windfall fiscal gain by the government largely depends on how it decides to utilise the fiscal gain.
Source: RESERVE BANK OF INDIA
