A V Rajwade: Recapitalising public sector banks

A V Rajwade: Recapitalising public sector banks: Privatisation or consolidation into half a dozen large banks might not rescue public sector banks from the crisis they find themselves in



My VIEW:

March 17, 2016
RBI's capital
This refers to A V Rajwade’s piece “Recapitalising public sector banks” (Business Standard, THE OTHER SIDE, March 17, 2016). After reading the observation “The chart shows that RBI is an outlier with an equity share of about 32 per cent, second only to Norway and well above that of the U.S. Federal Reserve Bank and the Bank of England, whose ratios are less than 2 per cent” in the Economic Survey 2016, I was also trying to find out the extent of capital owned by RBI. RBI’s capital has remained static at Rs 5 crores since inception. Table XI.1 of the latest RBI Annual report gives the following position as regards the central bank’s reserves, which has come down from a level of 11.9 per cent (of total assets) in 2009 to 8.4 per cent of total assets in 2015.

Table XI.1: Balances in Contingency Fund (CF) and Asset Development Fund (ADF)
(‘billion rupees)

As on June 30
Balance in CF
Balance in ADF
Total CF and ADF
CF+ADF as % to
total assets

2011
1707.28
158.66
1865.94
10.3

2012
1954.05
182.14
2136.19
9.7

2013
2216.52
207.61
2424.13
10.1

2014
2216.52
207.61
2424.13
9.2

2015
2216.14
217.61
2433.75
8.4

*
The decline in the CF is due to adjustment of the debit balance in the FCVA on account of MTM loss on forward contracts on June 30, 2015.
Source: RBI Annual Report 2014-15
Rajwade or anyone who is in the know of things may kindly clarify how the 32 per cent* mentioned in the portion from ES 2016 quoted above has been computed(RBI Balance Sheet is part of Annual report accessible @rbi.org.in)

M G Warrier, Mumbai

 Later in the day(March 17, 2016), a person who can be relied tells me 'they have taken all reserves as capital'. I am not sure whether international accounting practices have changed to conform to this position. Let us take the debate forward!
MGW




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