HYDERABAD: Amid the RBI-finance ministry standoff, the government may consider amending the RBI Act 1934, say sources. While the Act has undergone 19 amendments so far, the sections relating to reserves and surplus profit transfers, curiously, remained untouched in RBI’s 84-year history.
This will likely change now, with the government proposing an economic capital framework to determine the extent of profits the central bank should transfer towards reserves every year.
“Currently, there’s no pre-determined profit distribution formula, unlike other central bank. It’s reasonable to formalise the concept of appropriation of profits and accordingly amend the Act,” an official told TNIE. He added it would be up for discussion during the much-awaited RBI board meeting on Monday. Section 46 of the Act pertains to transfers by the government (towards capital) and RBI towards reserves, while Section 47 refers to allocation of surplus profits.
A technical committee may be constituted to determine the percentage of profits to be transferred to reserve accounts, the official added.
This is not the first time such expert opinion was sought. At least three committees, set up in the past two decades, made different suggestions, but none was implemented.
In 1997, an internal group led by V Subrahmanyam recommended Contingency Reserves be built up to 12 per cent of total assets, while Usha Thorat Group in 2004 suggested 18 per cent.
In June 2013, the Y H Malegam committee, recommended adequate amount of profits to be transferred each year to contingency reserves, without actually defining ‘adequate’.
It, however, noted Rs 6,505 crore capital and reserve fund was ‘wholly inadequate’ to RBI’s total assets of Rs 22 lakh crore as of June 2012, while contingency reserves of Rs 1.9 lakh crore needed to be bumped up considering the small size of capital and reserve fund.
The Malegam committee was decisive about the unrealised gains and losses on the translation of foreign assets and the marketing of investments to market.
RBI assets swell to Rs 36 lakh crore
As of June 2018, RBI had total assets worth Rs 36 lakh crore, while its reserves stood at Rs 9.6 lakh crore including contingency fund worth Rs 2.3 lakh crore, and the currency and gold revaluation fund aggregating Rs 6.9 lakh crore