Jalan panel holds 1st meeting to examine reserve size of RBI; report likely in April

New Delhi: A high-level panel led by former RBI governor Bimal Jalan Tuesday held its first meeting to decide on an appropriate size of reserves that the central bank should maintain and the dividend it should give to the government.

The six-member panel is likely to submit its report in April, sources said.

The panel has been entrusted with the task of reviewing the best practices followed by central banks worldwide in making assessment and provisions for risks which a central bank balance sheets are subject to.

The panel having former economic affairs secretary Rakesh Mohan as its vice chairman will propose a suitable profit distribution policy taking into account all the likely situations of RBI, including the situation of holding more provisions than required.

The government and RBI under previous governor Urjit Patel had been at loggerheads over the Rs 9.6 lakh crore surplus capital with the central bank.

The finance ministry was of the view that the buffer of 28 percent of gross assets maintained by RBI is well above the global norm of around 14 percent.

Following this, the RBI board in its meeting on November 19, 2018 decided to constitute a panel to examine Economic Capital Framework.

The committee also includes Economic Affairs Secretary Subhash Chandra Garg and two members of RBI central board -- Bharat Doshi and Sudhir Mankad.

RBI Deputy Governor NS Vishwanathan is the sixth member of the committee.

In the past, the issue of the ideal size of RBI's reserves has been examined by three committees -- V Subrahmanyam (1997), Usha Thorat (2004) and Y H Malegam (2013).

While the Subrahmanyam committee recommended that contingency reserve should be built up to 12 percent, the Thorat committee said the reserve adequacy should be maintained at 18 percent of the total assets.

While the RBI board did not accept the views of the Thorat committee, it decided to go ahead with the recommendation of the Subrahmanyam panel.

The Malegam committee recommended that adequate amount of profits should continue to be transferred each year to contingency reserves.