One of the world’s largest banks Bank of America Merill Lynch (BofAML) has stated in its report that the Bimal Jalan Committee appointed by RBI is likely to indicate that the central bank has excess reserves of upto $43 billion, reports Bloomberg.
These excess reserves represent a whopping 1.5 per cent of India’s gross domestic product (GDP). “Our stress tests throw up a range of one trillion rupees plus only from contingency reserves," said Indranil Sen Gupta, chief India economist at BofAML.
According to Gupta, RBI maintains higher contingency reserves as a percentage of its total assets compared to its BRICS peers- Brazil, Russia and South Africa. He stated that a lower cap on reserves will lead to more liquidity in the economy.
“As such, if the cap is halved to 3.25 per cent from 6.25 per cent, currently, that will release 1.3 trillion rupees,” he added.
As of November 2018, India’s central bank holds Rs 9.79 lakh crore in reserves, a sum equivalent to 28 per cent of its assets. This is twice the global average of around 14 per cent.
Use The Reserves To Fix The System
Even former Chief Economic Advisor (CEA), Arvind Subramanian had said that RBI’s current reserves should be judiciously utilised to fix India’s financial system, which would yield results in the long run.
As you are no doubt aware, Swarajya is, all in all, a reader-subscription-backed business model and in order to make sure we build a media platform with only the best interests of India at heart, we need your backing.
And in challenging times like this, we need your support now more than ever—to continue bringing you stories that are often shrugged off.
For us to invest in quality reporting and continue bringing you the right stories, it takes a lot of time and money.
Partner with us, be a patron or a subscriber. We need your support, throughout.