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RBI constitutes Expert Committee headed by Bimal Jalan on Economic Capital Framework

The Committee will review status, need and justification of various provisions, reserves and buffers presently provided for by the Reserve Bank of India.

Dec 27, 2018 09:35 IST
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The Reserve Bank of India (RBI), in consultation with the Union Government, on December 26, 2018 constituted an Expert Committee on Economic Capital Framework. The Committee will be headed by Bimal Jalan, while, former secretary Rakesh Mohan was named as the Vice Chairman.

The panel will decide on the appropriate size of reserves that the RBI should maintain and the dividend it should give to the government.

The decision regarding the constitution of the Committee was taken by the Central Board of Reserve Bank of India (RBI) in its meeting held on November 19, 2018.

Composition of the Committee

S. No.

Name

Role in the Committee

Post

1)

Bimal Jalan

Chairman

Former Governor of Reserve Bank of India

2)

Rakesh Mohan

Vice Chairman

Former Deputy Governor of RBI and 
former Secretary, Department of Economic Affairs

3)

Bharat Doshi

Member

Director of Central Board, RBI

4)

Sudhir Mankad

Member

Director of Central Board, RBI

5)

Subhash Chandra Garg

Member

Secretary, Department of Economic Affairs

6)

N.S. Vishwanathan

Member

Deputy Governor of RBI

Terms of Reference of the Committee

Suggest an adequate level of risk provisioning that the RBI needs to maintain

Determine whether the RBI is holding provisions, reserves and buffers in surplus or deficit of the required level of such provisions, reserves and buffers

Propose a suitable profits distribution policy taking into account all the likely situations of the RBI, including the situations of holding more provisions than required and the RBI holding less provisions than required

Any other related matter including treatment of surplus reserves created out of realised gains, if determined to be held
Major task of the Committee

Major task of the Committee

The Committee has also been tasked to review the extant Economic Capital Framework considering the:

(i) Statutory mandate under Section 47 of the RBI Act, 1934. As per the Section 47, the profits of the RBI shall be transferred to the Government, after making provisions ‘which are usually provided by the bankers’

(ii) Public policy mandate of the RBI, including financial stability considerations

Keeping the aforesaid considerations in mind, the Committee will:

  • Review status, need and justification of various provisions, reserves and buffers presently provided for by the RBI
  • Review global best practices followed by the central banks in making assessment and provisions for risks which central bank balance sheets are subject to

The Expert Committee will submit its report within a period of 90 days from the date of its first meeting.

What is Economic Capital Framework (ECF)?
The Economic Capital Framework (ECF) of the RBI handles the capital requirement for operation. The RBI holds ECF reserve of 27 percent.

The ECF amount can be used at the time of economic depression in the country. It can push more liquidity in the market to handle capital requirement.

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