Indian Economy
Revised Economic Capital Framework for RBI
- 28 Aug 2019
- 2 min read
Recently, the Reserve Bank of India (RBI) accepted the Bimal Jalan panel recommendations, set up to review the Reserve Bank of India’s (RBI’s) economic capital framework.
- Following these recommendations, RBI decided to transfer Rs 1.76 lakh crore in dividend and surplus reserves to the government.
- The objective of the economic capital framework is to build harmony between the central bank’s need for autonomy and the Government's objectives of the development.
- The Bimal Jalan-led panel recommended holistic risk capital frameworks to assess the adequacy of RBI reserves.
- Some recommendations of the committee:
- RBI to maintain the Contingency Risk Buffer (CRB), which is the country’s fund to handle financial stability within the range of 5.5% to 6.5% of the RBI’s balance sheet.
- It recommended a review of the Reserve Banks Economic Capital Framework (ECF) every five years.
- If there is a significant change in the RBI's risks and operating environment, an intermediate review may be considered.
- It also said the RBI's accounting year of July-June can be brought in sync with the fiscal year of April-March from the financial year 2020-21.
- It would also bring about a greater cohesiveness in the monetary policy projections and reports published by the RBI.
- The report has also removed the interim payout structure in general circumstances.
- The payment of an interim dividend may then be restricted to extraordinary circumstances.
- All the recommendations of the panel have been accepted by the RBI.
