Home India Corner RBI approves transfer of Rs 1.76 lakh crore to government

RBI approves transfer of Rs 1.76 lakh crore to government

RBI to transfer Rs 1.76 lakh crore to government to revive economic growth
RBI to transfer Rs 1.76 lakh crore to government to revive economic growth

The RBI has decided to transfer Rs 1.76 lakh crore as surplus reserve to the government. The move could reduce financial stress on the economy and contain fiscal deficit.

The Reserve Bank of India has accepted the recommendations of the Bimal Jalan committee and approved the transfer of Rs 1.76 lakh crore to the government. The committee was constituted to ascertain how much central reserves the central bank should hold.

After the approval, RBI’s central board initiated a transfer of Rs 1, 23,414 crore of surplus for the year 2018-19 and Rs 52,637 crore of excess provisions, according to the revised Economic Capital Framework (ECF). The framework was adopted after a meeting at the apex bank on Tuesday.

As per the recommendations of the Bimal Jalan committee, the RBI should maintain a Contingent Risk Buffer of 5.5-6.5% of the apex bank’s balance sheet as opposed to the previous 6.8 %. The excess amount of ₹52,637 crore will be transferred to the government.

On the other hand, the central bank’s economic capital level, that is the CGRA, will be kept in the range of 20-24.5% of the balance sheet. As of June 2019, the CGRA stood at 23.3%, and therefore a whopping ₹1, 23,414 crore will be transferred to the Centre. The RBI will continue to monitor the conditions of the market in order to decide the upper bound or lower bound of the contingency reserve in future.

Economists have asserted that the move is a lifeline for the government, which is currently looking for option to resuscitate the economy. They have further stated that revival of the economy also depends on the way the excess funds are utilized. Most economists believe that the only way to achieve the goal is by boosting investments in core sectors instead of trying to increase consumption.

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