The RBI’s Central Board, which survived many scrapes, will transfer Rs 1.76 lakh crore to the government this fiscal. The decision based on the Jalan committee report, sparked two types of opinion mobs. If critics, championing RBI’s independence, dismissed it as crying-baby-getting-the-candy, optimists perked up over the lean and mean surplus distribution policy. The issue of RBI’s reserves has been a roughneck for the government that first waged a war by stealth, which morphed into a bitter and personal row with three senior executives leaving office in disfavour. It caused needless embarrassment and a credibility crisis, but now it’s behind us.
The panel’s decision has three highlights. Perhaps, for the first time in RBI’s history, a mathematical formula determines the extent of contingency reserves it should hold. Two, revaluation reserves —the holy grail of RBI reserves at Rs 6.9 lakh crore—aren’t distributable, now or never. The nation gives thanks as it ends the much-feared raids on RBI’s balance sheet. Three, unlike in the past, the quantum of surplus profits too are range bound. If RBI’s economic capital, which includes realised equity and revaluation reserves, are within 20-24.5% of its balance sheet, the Board can transfer the entire net income, without batting an eyelid, to its sole owner—the sovereign. This prevents successive governments from making reckless demands for extra dough like a petulant child seizing his grandparent’s nest-egg.
That said, catcalls can be heard over RBI’s decision on two counts. One, applying the panel’s 5.5-6.5% range on contingency buffers, excess provisions were between Rs 11,608 crore and Rs 52,637 crore. However, the Board decided to transfer Rs 52,637 crore to the government in earnest, though it didn’t reveal the reason for doing so. Two, on economic capital, which is at a comfortable 23.3%, RBI instead of strengthening it further, transferred FY19 net income in toto. Given that the government got an even break, the least it can do is make judicious use of it for posterity.