RBI needs a strong balance sheet: Jalan Panel on ECF
M G Warrier 's response:
August 27, 2019
RBI's new ECF
This refers to the report “RBI to give ₹1.76 trn to govt" (Business Standard, August 27). RBI with active support from former governor Bimal Jalan and Ex-Deputy Governor Rakesh Mohan graciously handled a tough situation created by the ignorance of prudent central banking practices on the part of a couple of individuals. The new Economic Capital Framework (ECF) recommended by Jalan Panel and accepted by RBI should convince and satisfy all stakeholders.
At GOI's insistence, last couple of years, RBI has been making advance payment (during March) against amount transferable to Centre towards surplus income at the end of RBI's accounting year. With the change in accounting year of RBI to April-March, payment to GOI can be made after assessing the availability of surplus income, in the first place. This is a welcome change.
It may be recalled that RBI's reserves which had peaked to 11.9 percent of Balance Sheet size in 2009 has been depleting since then and now touching an all-time low of 5.5 percent. The Jalan Panel recommendation to maintain reserves at 5.5 to 6.5 percent level has to be seen in this perspective. In the central bank's eagerness to support GOI, the level has been maintained at the minimum of the band, as of now. GOI should welcome this gesture and in coming years reciprocate by helping RBI to augment its reserves. Ideally, RBI's share capital should be raised from the present level of Rs5 crores to the equivalent of US $100 billion or upwards.
M G Warrier, Mumbai