Skip to main content

RBI Decides Not to Touch Valuation Gain

The board of Reserve Bank of India, under new governor Shaktikanta Das, has set the basic rule that would determine future payout by the central bank to the government. At its last meeting, the board is learnt to have recorded the decision that the central bank will not touch the ‘unrealised gains’ in its balance sheet for dividend distribution to its sole shareholder, the government. “Unrealised gain is valuation gain in currency and gold. To tap this, it has to be realised or converted in the market. This is now ruled out… this has been minuted,” a person familiar with the matter told ET.
Of RBI’s total reserves of ?10.46 lakh crore, about ?6.9 lakh crore is recorded under ‘currency and gold revaluation account’ while ?2.32 lakh crore is ‘contingency fund’. The quantum of dividend to the government and the sharing of any surplus over and above RBI’s economic capital has been a contentious issue between RBI and the government reviving the old question on what’s the optimum capital that RBI should maintain.
Partly Defines Terms of Reference
A high-profile committee, headed by former RBI governor Bimal Jalan, has been constituted to look into RBI’s economic capital framework. Under the circumstances, the central bank’s decision partly defines the terms of reference of the committee. Its findings would indicate whether RBI has surplus capital that can be distributed to the government, whether the central bank can dip into contingency reserves for payout, and to what extent RBI needs to add to its contingency reserves before arriving at the dividend number in the current financial year as well as in the future. While the RBI Act does not restrict the bank from sharing a slice of its contingency fund, the board may have to pass a resolution for it to be endorsed by the auditor, said a chartered accountant who has handled RBI audit in the past.
Unlike regulatory capital of financial institutions, the ‘economic capital’ of a central bank is calculated using mathematical models that consider the nature of risks it may have to grapple with. While some studies have pointed out that RBI’s capital level is one of the highest in the world — way above large central banks like Bank of England and US Federal Reserve – there are others who believe that the central bank needs to preserve a higher capital due to India’s current account deficit and absence of a reserve currency (like US dollar or Euro).
FINANCIAL INCLUSION
RBI is likely to set up a new committee that would look into the future of financial inclusion and recommend ways to overcome the shortcomings. Sources said that former UIDAI chairman and Infosys co-founder Nandan Nilekani may be approached to head the proposed committee. “The use of technology to touch the unbanked, bank account portability, and issues like open banking may be considered… RBI’s focus has largely been credit delivery but more work may be required on the savings front,” said another person.
A recent report of Niti Aayog said that while the government has launched many flagship schemes to promote financial inclusion and provide financial security to empower the poor, there are constraints due to lack of financial literacy among low-income households and small informal businesses, and high cost of operations of traditional banking model. According to the government think tank, excessive regulatory requirements on products and market entry, and conservative regulatory approach to new technologies are the other impediments.

The Economic Times, 31th December 2018

Comments

Popular posts from this blog

Household debt up, but India still lags emerging-market economies: RBI

  Although household debt in India is rising, driven by increased borrowing from the financial sector, it remains lower than in other emerging-market economies (EMEs), the Reserve Bank of India (RBI) said in its Financial Stability Report. It added that non-housing retail loans, largely taken for consumption, accounted for 55 per cent of total household debt.As of December 2024, India’s household debt-to-gross domestic product ratio stood at 41.9 per cent. “...Non-housing retail loans, which are mostly used for consumption purposes, formed 54.9 per cent of total household debt as of March 2025 and 25.7 per cent of disposable income as of March 2024. Moreover, the share of these loans has been growing consistently over the years, and their growth has outpaced that of both housing loans and agriculture and business loans,” the RBI said in its report.Housing loans, by contrast, made up 29 per cent of household debt, and their growth has remained steady. However, disaggregated data sho...

External spillovers likely to hit India's financial system: RBI report

  While India’s growth remains insulated from global headwinds mainly due to buoyant domestic demand, the domestic financial system could, however, be impacted by external spillovers, the Reserve Bank of India (RBI) said in its half yearly Financial Stability Report published on Monday.Furthermore, the rising global trade disputes and intensifying geopolitical hostilities could negatively impact the domestic growth outlook and reduce the demand for bank credit, which has decelerated sharply. “Moreover, it could also lead to increased risk aversion among investors and further corrections in domestic equity markets, which despite the recent correction, remain at the high end of their historical range,” the report said.It noted that there is some build-up of stress, primarily in financial markets, on account of global spillovers, which is reflected in the marginal rise in the financial system stress indicator, an indicator of the stress level in the financial system, compared to its p...

Retail inflation cools to a six-year low of 2.82% in May on moderating food prices

  New Delhi: Retail inflation in India cooled to its lowest level in over six years in May, helped by a sharp moderation in food prices, according to provisional government data released Thursday.Consumer Price Index (CPI)-based inflation eased to 2.82% year-on-year, down from 3.16% in April and 4.8% in May last year, data from the Ministry of Statistics and Programme Implementation (MoSPI) showed. This marks the fourth consecutive month of sub-4% inflation, the longest such streak in at least five years.The data comes just days after the Reserve Bank of India’s (RBI) Monetary Policy Committee cut the repo rate by 50 basis points to 5.5%, its third straight cut and a cumulative reduction of 100 basis points since the easing cycle began in February. The move signals a possible pivot from inflation control to supporting growth.Food inflation came in at just 0.99% in May, down from 1.78% in April and a sharp decline from 8.69% a year ago.A Mint poll of 15 economists had projected CPI ...