The Reserve Bank of India (RBI) recently gave a nod to the suggestions made by the Bimal Jalan review panel concerning the RBI’s economic capital framework. In line with these recommendations, RBI earmarked Rs 1.76 lakh crore in dividend and surplus reserves for the central government. An economic capital framework seeks to establish a balance between the independence required by the central bank and the government’s development objectives.
The Proposed Risk Capital Frameworks
In the quest for an effective mechanism to evaluate the sufficiency of RBI reserves, the Bimal Jalan-led committee proposed comprehensive risk capital frameworks. The panel was established to conduct an in-depth review of the RBI’s economic capital structure.
Key Takeaways from the Committee’s Recommendations
Central to the group’s advice is that RBI should secure the Contingency Risk Buffer (CRB), a nationwide fund aimed at managing financial stability. The committee suggested that CRB should constitute between 5.5% to 6.5% of the RBI’s financial statement.
Moreover, the panel stipulated that the Reserve Bank’s Economic Capital Framework (ECF) ought to be reviewed every half decade. Additionally, if there is a drastic shift in the RBI’s risks and operating climate, an intermediate review could be deemed necessary.
According to the committee, the RBI’s accounting year, which currently runs from July to June, ought to align with the fiscal year starting from April through to March. This recommendation, pegged for implementation from the fiscal year 2020-21, is set to enhance coherence in the monetary policy predictions and reports published by the RBI.
In a significant move, the committee also removed the temporary payout structure under regular circumstances. This implies that the distribution of an interim dividend will only be permissible under exceptional circumstances.
Acceptance of the Recommendations
RBI has fully embraced the recommendations proposed by the panel.
Notable Facts About RBI and Bimal Jalan Committee
| Fact | Description |
|---|---|
| Date of formation of the committee | December, 2018 |
| Head of the Committee | Bimal Jalan, former RBI governor |
| Objective of the Committee | To review the economic capital framework of the RBI |
| Contingency Risk Buffer (CRB) | Nationwide fund aimed at managing financial stability |
| Proposed CRB range | 5.5% to 6.5% of RBI’s balance sheet |
| Proposed review period of ECF | Every five years |
| RBI’s new accounting year | April to March |