New Delhi: Differences regarding the Reserve Bank of India’s ‘excess’ reserves have spilt into the expert committee formed to look at the central bank’s economic capital framework, with the government representative on the panel disagreeing with its broad recommendations.
The differences within the panel have been such that Finance Secretary Subhash Garg, who is a member of the panel, has written to the Prime Minister’s Office for its intervention, a senior finance ministry official said. “The fight between the RBI and government over the reserves has worsened. In fact, the matter is now before the PMO,” the official said.
Late December, the RBI set up a panel under the chairmanship of former governor Bimal Jalan to review its economic capital framework. The terms of reference of the panel included reviewing the status and need for various reserves and buffers held by the RBI. The panel has recommended the RBI lower its excess reserves in a phased manner, although this will not involve any transfer of funds to the government, the official said. This suggestion has not found agreement with Garg.
According to the finance ministry official cited above, Garg believes the excess reserves accumulated by the RBI over the years in various funds–in this case the Contingency Fund–can be reversed and transferred to the government. Garg wrote to the other members of the panel that should the committee determine the RBI is holding excess reserves, it must–as per Section 47 of the RBI Act–reverse and transfer that surplus to the government, the official added.
As per Section 47 of the RBI Act, the central bank must pay to the government any profit which remains after making provision for bad and doubtful debts, depreciation in assets, contributions to staff and superannuation funds, and for all other matters for which provision is to be made. In its last two financial years, the RBI has transferred a total of Rs 273.30 bn to the Contingency Fund.
