RBI won’t transfer past reserves for now

MUMBAI: The Reserve Bank of India (RBI) will not immediately transfer surplus capital, which is set aside as reserves over the years, to the government. The central bank audit committee has, however, cleared an interim dividend of Rs 28,000 crore based on a limited audit for the current year and the same is likely to be declared after the central bank’s board meeting on February 18.

The demand to transfer capital surplus was made by the Centre after its attempts to get the RBI to part with what was described “excess reserves” was turned down and the issue of capital framework was referred to a committee under Bimal Jalan. The government had argued that the central bank had more reserves than many of its peers.

The latest move by the department of economic affairs is part of a series of demands on regulators, including

Sebi, which market players are seeing as “over-reach” by the government, especially after it pushed Urjit Patel to resign as RBI governor amid the threat of issuing a directive to the banking regulator.

Following the interim Budget, economic affairs secretary Subhash Chandra Garg, who is seen to be driving the offensive against the regulators, had said that the government is expecting a Rs 28,000 crore interim dividend from RBI.

This was in addition to the Rs 40,000 crore surplus already paid out by the central bank last year. The Jalan committee, which will decide on the appropriate level of reserves for RBI, is expected to submit its report by March 31. The concern in RBI is that the transfer of earlier year’s transfer to reserves, without the Jalan committee’s recommendation, is inappropriate.

On February 5, in response to a Parliamentary question from Congress MP Selja Kumari, minister of state for finance P Radhakrishnan had said that the government had requested RBI to provide an interim surplus for the financial year 2018-19 “on the analogy of previous financial year and transfer of the amount withheld from the surplus of 2016-17 and 2017-18”. He also said the government had not made any request under Section 7 of the RBI Act which empowers the government to give directions.

In the reply, the MoS said that RBI had held back Rs 13,190 crore and Rs 14,190 crore in 2016-17 and 2017-18 respectively which adds up to Rs 27,380 crore.

In his post-policy interaction on Friday, RBI governor Shaktikanta Das had said, “There are several issues which are under discussion between government and RBI and a decision is taken after discussion. Any decision of RBI is driven by principles and accounting norms,” said Das. He was responding to a question on whether government had asked RBI to transfer funds from money set aside towards reserves in the previous year.

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