Published: Sun, November 11, 2018
Money | By Ralph Mccoy

No Proposal From Government Seeking RBI's Surplus Reserves: Top Official

No Proposal From Government Seeking RBI's Surplus Reserves: Top Official

Further, "Discussions are underway with the RBI to decide the appropriate economic capital framework of the central bank", Subhash Chandra Garg, secretary of the department of economic affairs, ministry of finance, said on Twitter.

This framework would stipulate the amount of reserves that the Central bank should maintain.

Earlier this week, the Indian Express had reported that the alleged rift between the Centre and the RBI was because of a proposal by the Finance Ministry.

The clarification comes amid report that the government is seeking transfer of at least a third of Reserve Bank's Rs 9.6 lakh crore reserves. There is no proposal to ask RBI to transfer Rs 3.6 or 1 lakh crore, as speculated.

In the Economic Survey 2016-17, the then chief economic adviser Arvind Subramanian argued that the RBI was already exceptionally highly capitalised and that it could transfer almost Rs 4 lakh crore of its capital to the government which can be used for recapitalising the banks and/ or recapitalising a Public Sector Asset Rehabilitation Agency.

In a speech last month, RBI deputy governor Viral Acharya listed challenges to the independence of the RBI and said: "Having adequate reserves to bear any losses that arise from central bank operations and having appropriate rules to allocate profits (including rules that govern the accumulation of capital and reserves) is considered an important part of central bank's independence from the government".

The stage is set for another showdown between the Reserve Bank of India (RBI) and the Union government with the Centre sticking to its ground on Friday.

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The government will not compromise on seeking the RBI's excess capital as part of a framework, but will be flexible on the amount to be paid and is willing to negotiate, top sources in the government said. Once this is finalised, excess reserves could be transferred to the government, providing the latter with a fiscal cushion.

Officials said the government had been asking for a new economic capital framework for long.

Most central banks around the world keep 13 per cent to 14 per cent of their assets as reserve, compared with the Reserve Bank's 27 per cent, the official said.

As on June 30, 2018, the RBI had total assets of Rs Rs 36.17 lakh crore on its balance sheet.

Exuding confidence about government's fiscal math, he said, it will stick to the fiscal deficit target of 3.3 per cent for the current financial year ending March 31, 2019.

The RBI calculates its capital needs based on "stressed value-at-risk" valuations at a 99.99 per cent confidence interval, while the government wants the central bank to use just "value-at-risk" (VAR) at a 99 per cent confidence interval, which most other central banks use. Government's FD in FY 2013-14 was 5.1%. We'll end FY 2018-19 with FD of 3.3 per cent, " said (DEA) Secretary. "Government has actually foregone Rs 70,000 crore of budgeted market borrowing this year", Garg said.

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