RBI Approves To Transfer Rs. 1.76 Lakh Crore To The Government

Reserve Bank of India’s (RBI) central board on August 26, took a decision based on the Jalan Committee’s recommendation, to transfer Rs. 1,76,051 crore to the Government. This includes Rs. 1,23,414 crore as surplus for 2018–19 and Rs. 52,637 crore of excess provisions identified by the committee in accordance with revised Economic Capital Framework. Out of this total amount, Rs. 28,000 crore have already been paid as interim dividend and has been accounted by budget in the previous financial year. “The Committee’s recommendations were guided by the fact that RBI forms the primary bulwark for monetary, financial and external stability. Hence, the resilience of the RBI needs to be commensurate with its public policy objectives and must be maintained above the level of peer central banks as would be expected of a central bank of one of the fastest growing large economies of the world,” noted RBI’s circular.

Experts feel that although, the recommendations and their acceptance by the apex bank lend credibility to India’s overall policy frameworks and institutions, but from a market standpoint the net additional amounts involved here are at just under 0.3% of GDP. Commenting on the situation, Suyash Choudhary, Head-Fixed income, IDFC Mutual Fund said, “Overall the identified ‘excess’ transferrable capital by the Jalan committee is only just above Rs. 50,000 crore, far below the hopeful bounties being talked about. 

Not just that, future pay-outs are now formula driven and subject to some constraints with respect to the maintenance of a minimum contingent risk buffer (CRB). However, we believe, this disappointment is blunted owing to a much higher than expected normal dividend transfer for the current year which, if used judiciously, can be invaluable in making the budget math sound more credible.”

The circular further stated that, given the available realised equity stood at 6.8% of RBI’s balance sheet, the entire net income will be transferred to government only if CRB is at least above 5.5% and subject to RBI’s Central Board approval if between 5.5-6.5%. “CRB will likely be lower than 5.5% and provisions will have to be made leading to lower dividend for the government. In such a scenario, dependence on RBI transfers to bridge fiscal gaps may need to be reduced; thereby necessitating a relook at asset monetisation (divestment, land banks) and improving tax compliance,” noted an analyst at Kotak securities.