Thursday , July 7 2022

RBI should reduce buffer capital, release cash to increase dividend: Supreme official



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The Ministry of Finance will not jeopardize the request for a surplus of capital from the Reserve Bank of India (RBI) and push it to adopt a new dividend policy when a central bank committee meets on November 19, said the main sources of government Business standard.

The Ministry of Finance seeks 3.6 billion dollars from the central bank, but is open to negotiating an additional surplus of RBI salaries in addition to regular dividends.

"What we are looking for from RBI is the establishment of a new policy for dividends and capital reserves," RBI's current capital requirement is 27%, while most central banks have 14%. "According to our calculations, if 14% RBI provisions can be set aside to 3, 6 trillion dollars, "one senior government official said.

"But we do not say that it provided 14 percent, holding it, say, from 18 to 20 percent, let the RBI decide, but it must be less conservative in its assessment and must decide on the policy of capital reserves and dividends," he said. official. Regardless of how much it is decided, RBI does not have to pay at one time and could extend it for several years, he added.

Like Business standard Earlier this year, a warning by the Ministry of Internal Finance earlier this year showed that the government thinks it receives a lower surplus from RBI because the central bank is extremely conservative in assessing its capital reserves to meet market risks. RBI calculates its capital needs based on "high risk values" with a confidence interval of 99.9 percent, while the government wants the central bank to use the value of "risk of risk", with a confidence of 99 percent interval preferred by most central banks.

RBI transfers the surplus from the balance sheet to the Center each year as a dividend. In the period from July 2016 to June 2017, the Government transferred $ 306 billion. Secretary of Economic Affairs Subhash Garg publicly asked RBI an additional $ 130 billion from reserve reserves to make the total surplus received for the year at 430 billion. On March 27, four days before the end of the 18 FG18, it transferred an additional $ 100 billion to the government, which would form part of its payment from July 2017 to June 18. For this period, RBI said it will transfer a total of 500 billion.

The government's request for an additional surplus was long-standing. In the economic survey of 2016, former chief economic adviser Arvind Subramanian thoroughly considered the government's stance. The study's survey showed that only three countries – Norway, Russia and Malaysia – had central banks with higher capital, as a percentage of the overall balance, from India.

"There is no particular reason why this additional capital should be held with RBI, even at the current levels, RBI has already been extremely high capitalized, in fact, it is one of the most capitalized central banks in the world, so it seems more productive to process some of this capital in other ways, "Subramanian said in a survey.

"The key principle to be respected in this process is that the excess of capital in RBI, including that generated by demonetization, is a balance sheet or a gain of wealth, not a gain from income. Therefore, the use to which this is put should be a balance It can not be stressed enough that any strategy for the use of surplus capital must be carefully undertaken in no way to jeopardize or obey the relevant laws. This must also be done with the full cooperation of the RBI to ensure that the independence and credibility of R I-a in any way are not undermined, "said Subramanian.

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