RBI has “more than adequate” reserves and that it can transfer around Rs 1-3 lakh crore to the government after a specially constituted panel identifies the “excess capital”, says a report by Bank of America Merrill Lynch (BoAML). According to a report by the investment bank, there is no bar on how much country’s central bank can transfer from its reserves beyond its annual surplus. RBI can transfer Rs 1 trillion to the government if the transfer is limited to passing excess contingency reserve and can go up to Rs 3 trillion if the total capital is included.
Regarding the split-up of the amount, the report said, Rs 1.05 trillion can be transferred if the contingency reserve is capped at 3.5 per cent of the RBI reserves. It further said this level will be 75 per cent higher than the average of BRICS economies(excluding India).
A board meeting has decided to form a committee, which is likely to be announced later this week.
The report said, “We expect the proposed committee on the RBI’s economic capital framework (ECF) to identify Rs 1-3 trillion which is 0.5-1.6 per cent of GDP as excess capital.”
The report stated , “Limiting the appreciation cover in RBI’s currency and gold revaluation account to 25 per cent (Rs 53.25 per USD) will release about Rs 72,000 crore to the government. Capping the overall reserves at 20 percent of the RBI’s book as against 28.3 percent now and higher than 18 percent recommended by the Usha Thorat panel will be able to release Rs 3.11 trillion.”
Highlighting the RBI Act, it said that it places no bar as long as government maintains Rs 5 crore of reserve funds under Sec 46 of the RBI Act.
This weekend Finance minister Arun Jaitley received widespread criticism over his statement that the central government does not need any support from RBI’s reserves for the next 6 months. However, several reports have claimed that the government is eyeing the extra cash which will help it in the run-up to the elections.