RBI Sitting On ‘Excess Capital’, Can Easily Transfer Over Rs 1 Lakh Crore To Government, Claims Report

The Reserve Bank has "more than adequate" reserves and it can easily transfer over Rs 1 lakh crore to the government after a specially constituted panel identifies the "excess capital", reports Press Trust of India.

An RBI board meeting had last week announced that a committee will be formed to examine the central bank’s Economic Capital Framework while the members and terms of reference of the committee will be decided jointly by the RBI and the government.

"We expect the proposed committee on the RBI's economic capital framework (ECF) to identify Rs 1-3 lakh crore which is 0.5-1.6 per cent of GDP as excess capital," analysts at Bank of America Merrill Lynch said in a note on Monday (25 November).

The brokerage report said as per its stress tests, the central bank can transfer Rs 1 lakh crore to the government if the transfer is limited to passing excess contingency reserve and can go up to Rs 3 lakh crore if the total capital is included.

Giving a break-up, the report said Rs 1.05 lakh crore can be transferred if the contingency reserve is capped at 3.5 per cent of the RBI book.

It further noted that at this level will be 75 per cent higher than the average of BRICS economies, excluding India.

Additional forms of transfers can include Rs 1.16 lakh crore from the contingency reserves if one restricts to yield rise of 4.5 per cent as against 9 per cent at present.

Limiting the appreciation cover in RBI's currency and gold revaluation account to 25 per cent (Rs 53.25 per USD) will release about Rs 72,000 crore to the government, it said.

It also said capping the overall reserves at 20 per cent of the RBI's book as against 28.3 per cent now and higher than 18 per cent recommended by the Usha Thorat panel will be able to release Rs 3.11 lakh crore.

The statutes do not prohibit the transfer of excess capital to the government, it said, pointing out that the RBI Act places no bar as long as the government maintains Rs 5 crore of reserve funds under Sec 46 of the RBI Act.

While Section 47 enjoins the RBI to credit its annual surplus to the national exchequer, after provisions, it does not place any restrictions on further transfers, it added.

(Based on PTI inputs)