BQ Exclusive: RBI Panel Estimated ‘Transferable Surplus’ At Just About Rs 8,000 Crore

The panel set up to review the Reserve Bank of India’s economic capital framework estimated the transferable surplus, or the amount the central bank could potentially pass on to the government, is close to Rs 8,000 crore, a person familiar with the matter told BloombergQuint on condition of anonymity.

This finding was part of the initial report of the committee, which is yet to be finalised due to differences between members.

In reaching that conclusion, the panel headed by former RBI Governor Bimal Jalan, considered three different formulae, said another person privy to the panel’s deliberations. After considering those scenarios, the panel settled on a formula which led to a small surplus of around Rs 8,000-8,500 crore, said the first person quoted above.

Five of the six panel members had agreed to this formula and were of the view that this surplus need not be transferred to the government immediately, the person quoted above said, citing the panel’s initial report.

The initial report was finalised before the panel’s meeting on June 12. The committee was supposed to approve the report on that day but failed to do so due to opposition from Economic Affairs Secretary Subhash Chandra Garg, the Government representative on the committee, the first person said. The panel then decided to meet again on June 24 but Garg did not to attend the meeting and the report was deferred again.

The panel will now meet on July 17.

The initial report had suggested that the RBI use the formula agreed upon to calculate the exact surplus when it prepares its balance sheet for July-June 2019. The surplus can subsequently be transferred to the government with the final dividend, the same person said.

BloombergQuint had earlier reported that the panel could relax the formula used to calculate ‘stressed value at risk’ by easing the confidence interval. This would help in increasing the dividend transfer to the government in subsequent years but not lead to any large one-time transfer.

Nomura Research, in a recent note which explored different scenario’s for the central bank’s Economic Capital Framework, said that even if the committee determines the RBI holds excess capital, the transfer may take place in a phased manner rather than in one go.

“Moreover, with the government already assuming a large dividend from the RBI (about Rs 75,000 crore in FY20, based on Nomura estimates) after having already received an interim dividend (Rs 28,000 crore), we believe expectations of a large fiscal windfall (about Rs 3 lakh crore) are at a risk of being disappointed,” Nomura said.