The RBI can transfer 1 trillion Rs of excess reserves to the government: Report

MUMBAI: The Reserve Bank has "more than enough" reserves and can transfer more than Rs. 1 trillion to the government after a panel has identified "excess capital," a report says.

A meeting of the RBI's board of directors decided last Monday to form a committee, which should be announced later this week.

"We expect the proposed Committee on the Economic Capital Framework (FCE) of the RBI that it identifies 1 to 3 trillion rupees, which represents 0.5 to 1.6% of GDP in excess of capital, "said Bank of America badysts Merrill Lynch. On Monday.

The brokerage report indicates that, according to its stress tests, the central bank can transfer Rs. 1 trillion to the government if the transfer is limited to exceeding the excess contingency reserve and can reach Rs. 3 trillion if the total capital is included.

Giving a break, the report says that 1.05 trillion rupees can be transferred if the contingency reserve is capped at 3.5% of the RBI's portfolio. He added that this level will be 75% higher than the average of the BRICS economies, with the exception of India.

Other forms of transfer may include 1.16 trillion rupees from contingency reserves if one limits itself to an increase of 4.5% against 9% at present time .

Limiting the revaluation account of the RBI in foreign currency and gold (Rs. 53.25 to US $ 1) to 25 per cent will generate about Rs. 72,000 crore in the government, at 25 per cent. he declares.

He also stated that the ceiling of total reserves would be 20% of the RBI's book, up from 28.3% at present and above 18% recommended by Usha Thorat's panel. , which will release 3.11 billion rupees.

Laws do not prohibit the transfer of surplus capital to the government, he said, pointing out that the law on the RBI does not prohibit anything as long as the government maintains 5 crores of reserve funds under section 46 of the Act.

Although Section 47 requires the RBI to credit its annual surplus to the National Treasury after provisions, it does not impose any restrictions on subsequent transfers, she added.

The RBI contingency reserves, at 7%, are above the 2% average of the BRICS (excluding India), he added, adding that the revaluation reserves are also higher than the banks central BRICS.

According to a press release issued after the nine-hour marathon administration board meeting, the government and the RBI will jointly decide on the formation of the committee and its mandate.

As a result of many criticisms, Finance Minister Arun Jaitley had said this weekend that the government did not need help from the RBI's reserves for the next six months . However, several reports claimed that the government was considering additional money that will help in the run-up to the elections.

This is due to the decline in GST revenues and the remaining loan margin for the government, which had already used almost 96% of the loans at the end of October. By taking money from the RBI, the government will only exacerbate its budget deficit because it will have to issue bonds to the central bank.

For the second year in a row, the government set the budget deficit at 3.3% of GDP this fiscal year. Many badysts expect the government to exceed this figure by at least 20-30 basis points by March.