The Reserve Bank of India (RBI) at its board meeting decided to transfer a whopping Rs 1.76 lakh crore to the Centre — including interim dividend of ₹28,000 crore paid in February.

The Rs 1.76 lakh crore includes the central bank’s 2018-19 surplus of Rs 1.23 lakh crore and Rs 52,637 crore of excess provisions identified as per the revised Economic Capital Framework (ECF) adopted at the Board meeting.

RBI Finance Boost

Based on Jalan panel recommendations
The RBI had formed a committee chaired by former Governor Bimal Jalan to review its economic capital framework and suggest the quantum of excess provision to be transferred to the government.

The committee was formed after a demand from the government for more money. The RBI Board has accepted all the recommendations of the Jalan committee.

Two components of economic capital
The panel recommended a clear distinction between the two components of economic capital – realized equity and revaluation balances. It was recommended that realized equity could be used for meeting all risks/ losses as they were primarily built up from retained earnings, while revaluation balances could be reckoned only as risk buffers against market risks as they represented unrealized valuation gains and hence were not distributable.

The ‘Surplus Distribution Policy’, as recommended by the committee, says only if realized equity is above its requirement, the entire net income will be transferable to the Government.

Relevant for GS Prelims & Mains Paper III; Economics