Bimal Jalan Committe
The Bimal Jalan Committee which was formed under former RBI Governor Jalan on December 26, 2018, to investigate the economic capital framework (ECF) for the Reserve Bank of India.
Why was it formed?
- As per conventional estimates, the RBI has over Rs 9 lakh crore of surplus capital in its reserves.
- The Jalan Committee was formed as the Union Finance Ministry wanted the Government’s banker to transfer some of its surplus cash to it in line with global practices.
- The panel had been asked with reviewing the global best practices followed by foreign central banks in making assessment and provisions for risks and advise the government on the same.
- The finance ministry contended that the RBI buffer reserves of 28% were well above the global 14% kept by other central banks.
- This cash transfer would enable the government to meet its fiscal deficit reduction target.
- The Union Government had set for itself a fiscal deficit reduction target of 3.3% of the GDP which is lesser than 3.4% in the last year.
What has happened now?
The 6-member committee has finalized its report and would be submitting it to the government soon.
While the exact amount of surplus transfer has not been disclosed, the transfer of the money would be periodic and would take place over 3-5 years.
What happens globally?
Even if the Jalan Committee recommends the halving of the RBI’s contingency reserves to 3.25% (presently 6.5%) would release Rs 1.282 lakh crore for the government. Even the 3.25% limit is 50% higher than what central banks in the BRICS (Brazil, Russia, India, China and South Africa) grouping have.
The ideal size of the RBI reserves was examined by the V Subrahmanyam (in 1997), Usha Thorat (in 2004) and YH Malegam (in 2013) committees in the past.
While Subrahmanyam panel had recommended a 12% contingency reserve, the Thorat panel wanted it to be 18% of the total assets of the central bank.
In its recommendation, the Malegam panel wanted the RBI to transfer an adequate amount of its profit to the contingency reserves annually but did not provide any number.
RBI did not accept the Thorat committee‘s recommendation while it continued with the Subrahmanyam committee’s recommendation.