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economy | IST

Will RBI set aside Jalan committee's capital requirements norms for pandemic year?

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The Bimal Jalan panel requires RBI to maintain a minimum of 20.8 percent of its balance sheet as capital. According to a report by Ananth Narayan of the Observatory Group, the government will have to infuse about Rs 57,000 crore capital into RBI to meet the capital requirement.

In the 2021-2022 Budget, the Reserve Bank of India (RBI) is expected to pay a dividend of Rs 53,510 crore. However, halfway through the year, it is far from being able to give this dividend.
The RBI may require capital to keep up with the Bimal Jalan committee's norms, according to a report by Ananth Narayan of the Observatory Group. The Bimal Jalan panel requires RBI to maintain a minimum of 20.8 percent of its balance sheet as capital.
This year RBI has bought a whole lot of bonds and dollars and so its balance sheet has expanded by a whopping Rs 5.9 lakh crore.


According to Narayan, this means the government will have to infuse about Rs 57,000 crore capital into RBI to meet the 20.8 percent capital requirement. Also, the appreciation of the rupee further lessens the existing capital of RBI. Narayan said a 1 percent appreciation of the rupee reduces RBI's capital by about Rs 35,000 crore.
Narayan points out RBI can reduce its balance sheet by doing sell-buy FX swaps. So some of the dollars temporarily become forward dollar positions and not part of the balance sheet.
RBI did that last year between October and February by doing a lot of sell-buy swaps. But this can lead to further rupee appreciation, which RBI doesn't want. So, maybe RBI will set aside the Jalan recommendations in the pandemic year.
Watch the video for more.