No RBI ‘capital transfer’, govt for ‘fix on reserves’

New Delhi, November 9

Amid a face-off with the RBI, the government on Friday said it is discussing an “appropriate” size of capital reserves that the bank must maintain but denied seeking a massive capital transfer from the Reserve Bank.

The Reserve Bank of India has Rs 9.59 lakh crore reserves and the government, if reports are to be believed, wants the bank to part with a third of that fund — an issue which along with easing of norms for weak banks and raising liquidity has brought the two at loggerheads in recent weeks.

Economic Affairs Secretary Subhash Chandra Garg took to Twitter to clarify that the government was not in any dire needs of funds and that there was no proposal to ask the RBI to transfer Rs 3.6 lakh crore. The government, he said, was on track to meet the fiscal deficit target of 3.1 per cent for 2018-19.

“Government’s FD (fiscal deficit) in FY 2013-14 was 5.1%. From 2014-15, it has succeeded in bringing it down substantially. We will end the FY 2018-19 with FD of 3.3%. Government has actually foregone (Rs) 70,000 crore of budgeted market borrowing this year.”

Garg said the only proposal “under discussion is to fix appropriate economic capital framework of RBI”. 

Economic capital framework refers to the risk capital required by the central bank while taking into account different risks. Former Chief Economic Adviser Arvind Subramanian had in Economic Survey 2016-17 said the RBI was already exceptionally highly capitalised and nearly Rs 4 lakh crore of its capital transfer to the government can be used for recapitalising the banks and/or recapitalising a Public Sector Asset Rehabilitation Agency. The proposal never saw the light of the day.

On Thursday, former Finance Minister P Chidambaram had alleged that the Narendra Modi government was trying to capture the RBI to tide over its fiscal crisis. If RBI Governor Urjit Patel stands his ground, the Centre is planning to issue a direction under Section 7 of the RBI Act, 1934, directing the apex bank to transfer Rs 1 lakh crore to the government, he had claimed.

The government is seeking a transparent formula for arriving at a minimum threshold capital reserve needed to be maintained in line with globally acceptable practice, an official claimed.

The issue may come up at the next RBI board meeting on November 19. — PTI