Not seeking ₹3.6 lakh crore from RBI: DEA Secretary

Irving Hamilton
November 9, 2018

"Currently, the RBI's capital needs put its provisioning at 27 per cent, while most central banks have theirs at 14 per cent". The RBI calculates its capital needs based on "stressed value-at-risk" valuations at a 99.9 per cent confidence interval, while the government wants the central bank to use the "value-at-risk" figure, at a 99 per cent confidence interval, which most central banks prefer.

It was also reported that the government wants the RBI to start paying a higher share of its profits as dividend, something that the central bank is reluctant to do because it wants to keep its profits in order to bolster its balance sheet.

Arvind Subramanian, former chief economic adviser to the government, had argued in his Economic Surveys that the central bank was sitting on too much capital and "assuming that the RBI returns four trillion rupees of capital to the government" it could be put to productive use. "There is no proposal to ask RBI to transfer Rs 3.6 or 1 lakh crore, as speculated".

The government on Friday said it is not seeking Rs 3.6 lakh crore capital + from the Reserve Bank but is only in discussion for fixing appropriate economic capital framework of the central bank.

However, the government clarified earlier today that the above-mentioned reports were a product of speculation and that it had no such demand from the RBI.

Kolkata: Senior Congress leader P Chidambaram on Thursday accused the Narendra Modi government of trying to capture the Reserve Bank of India (RBI) to tide over its fiscal crisis, warning that any such move would be catastrophic.

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"If the RBI either defies the government or RBI governor resigns, in either event, the effect will be catastrophic", he added.

The matter is pending before the board of the Reserve Bank of India and is likely to be taken up again at its next meeting likely on 19 November, the official told reporters, asking not to be identified citing rules.

The RBI and the government have not been on the same page on different issues for some weeks now.

In an attempt to clean up the banking system, which has the worst bad-loan ratio among major economies after Italy, the RBI ring-fenced weak state-run banks by curbing lending and expansion at 11 state-run lenders.

The RBI, some say, may be open to easing liquidity rules, including by injecting cash through open market purchases of bonds but an agreement on giving away a part of its reserves may not be easy to come by. The government realised Rs 51,623.24 crore under this head in the previous fiscal.

RBI transfers a surplus from its balance sheet to the Centre every year as the dividend.

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