Bimal Jalan Committee

Agenda
Terms of
reference
s Controver
sy

About Deep Dive

Inferences/Concl
Bimal Analysis
usion
Jalan
Committe
e
 Meetings
Held
1 st
2 nd
D-day
Extensio 3 th 4th &
Final
Meeting Meeting n Meeting
Meeting

12th
th June’19

19th 8 th
th January’19 April’19
18th
th July’19
November’1
- Set up a - Extension
- To decide on - Report
8
panel for - Report has
an submissio
submission been out but
appropriate n during
- To review the of report in not yet
ECF May-June,
Economic July’19 submitted
- Submit the missing its
Capital
report within April
Framework for
90 days i.e. deadline
RBI
Apr’19

Officially appointed
committee on 26th
Dec’18
 Composition of
committee
As decided by the Central Board of Reserve Bank of India (RBI) in its meeting held on 19 November 2018, the RBI, in consultation with the Government of India, has
today constituted an Expert Committee to review the extant Economic Capital Framework of the RBI.

Dr. Bimal Jalan Dr. Rakesh Mohan Shri Bharat Doshi Shri Sudhir Mankad Shri Subhash Shri N.S.
(Chairman) (Vice-Chairman) (Member) (Member) Chandra Garg Vishwanathan
(Member) (Member)

Former Governor, Former Deputy Director, Central Director, Central Secretary, Department Deputy Governor,
Reserve Bank of Governor, Reserve Board, Reserve Bank of Board, Reserve Bank of of Economic Affairs,  Reserve Bank of India
India Bank of India and  India India Ministry of Finance,
former Secretary, Government of India
Department of
Economic Affairs, 
Ministry of Finance,
Government of India
 Terms of reference of the
committee
1. Keeping in consideration
(i) Statutory mandate under section 47 of the RBI Act that 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, the Expert Committee would
a.review status, need and justification of various provisions, reserves and buffers presently provided for by the RBI; and
b.review global best practices followed by the central banks in making assessment and provisions for risks which central bank balance
sheets are subject to

2. To suggest an adequate level of risk provisioning that the RBI needs to maintain

3. To determine whether the RBI is holding provisions, reserves and buffers in surplus / deficit of the required level of such provisions,
reserves and buffers

4. To 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

5. Any other related matter including treatment of surplus reserves, created out of realised gains, if determined to be held.

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

Source: https://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=45826
 RBI’s assets and reserves
The total assets of RBI is 36,17,594 crore for the financial year of 2017-18. It includes-

 Foreign currency assets which is 26,35,074 crores.

 Gold is 1,44,023 crores as per the report submitted by RBI.

The major liabilities of RBI are-

 RBI has total capital buffers worth Rs 9.6 lakh crore ( ~27% of assets), which is relatively
higher than the general global practice ( (like the US and UK) keep 13% to 14% of their
assets as a reserve)
 RBI's core reserve i.e. Contingency fund is ~ 7% of its total assets.  
 There are two major components to RBI’s reserves (As per FY 2018):
• A Contingency Fund of Rs 2.5 lakh crore.
• A Currency and Gold Revaluation Reserve of Rs 6.91 lakh crore
Source: https://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=45826
 In
Trillions
Year 2017 23.7
Foreign Assets
Year 2018 26.4

Year 2017 8.38

RBI Reserves
Year 2018 9.6

According to the government, most central banks

 keep 13-14 per cent of their assets as reserves,
but in the case of the RBI, it is 27 per cent.
Therefore, the implicit demand was to have a
reserve transfer of Rs 3-4 trillion.
FACTS AND FEATURES
1. The panel has been entrusted with the task of reviewing the best practices followed by central banks worldwide in making assessment
and provisions for risks. 
2.The panel, having former economic affairs secretary Rakesh Mohan as its vice chairman, will propose a suitable profit distribution policy,
taking into account all the likely situations of the RBI, including the requirement of holding more provisions than required. 
3.The government and the RBI under previous governor Urjit Patel had been at loggerheads over the Rs 9.6 lakh crore surplus capital with
the central bank.
4.The finance ministry was of the view that the buffer of 28 per cent of gross assets maintained by the central bank is well above the global
norm of around 14 per cent. Following this, the RBI board in its meeting on November 19, 2018 decided to constitute a panel to examine
Economic Capital Framework.
5. n the past, the issue of the ideal size of the Reserve Bank of India reserves was examined by three committees -- V Subrahmanyam in
1997, Usha Thorat in 2004 and YH Malegam in 2013
6. According to a report of by Bank of America Merrill Lynch, the Jalan committee is likely to identify an excess buffer of up to Rs 3 lakh
crore. This includes the excess capital in contingency reserves and also revaluation of reserves. 

 
 
 Reasons
1. The main reason behind this conflict is that government want that the RBI should give the 3.6 lakh
surplus money to the government so that they can use it for the upliftment and main finacing of the
budget.
2. Resreve bank of india is offending this decision because they don’t want to lower their case reserve
because a lower cash reserve would lead to the downfall in the credibility of the Rbi and if the
credibility of the bank Is gone down no foreign investor will like to invest in the economy.
3. “RBI Should play like Rahul dravid not like sidhu” Raghu ram rajan
RBI CAPITAL FRAMEWORK PANEL
1. Review status, need & justification of various RBI
provisions ,reserve, buffers.
2. Review global best practices followed by the central
bank in risk assessment & provision
3. Suggest adequate level of risk provisioning that RBI
needs to maintain.
4. Propose a suitable profits distribution policy
 Inference/Conclusion
Report has been finalized but not yet submitted as editing is taking place – expected to be submitted in
10-15 days

Suggested by committee: transfer of funds from RBI in tranches over 3-5 years which is not
immediately clear that how much money the RBI will transfer to the government.

Next review of ECF will be periodical

The RBI's annual surplus transfers are key to the government bridging the budget deficit as it aims to
lower the fiscal deficit to 3.0 percent of the gross domestic product next fiscal, from the 3.3 percent
target this year
June 26 reported that finance secretary Subhash Chandra Garg had expressed dissent in the panel as he
wants the money to transfer in one go and it is quite possible the report may now include a formal
dissent note from the secretary.
Government will use these reserves for development of India – infrastructure, social development or
might can use for recapitalization whereas no such quote has been officially disclosed by government
THANK YOU