RBI's Board Reviews Capital Framework

The Reserve Bank of India (RBI) is on the verge of changing how it calculates the dividend paid to the government. This comes as the central board of directors reviews the economic capital framework, a move that could significantly impact the fiscal health of the nation.

Economists predict a dividend transfer of Rs 2.5-2.75 lakh crore to the government, thanks to record profits from dollar sales amid the rupee's depreciation. These earnings, booked in FY25, will be paid out in the current fiscal, typically by May's end.

Jalan Committee's Recommendations Revisited

The 2019 Bimal Jalan Committee report suggested including revaluation balances in RBI’s risk buffers but cautioned against their volatility. It emphasized a balanced surplus distribution policy, considering both total economic capital and realised equity.

A critical suggestion was maintaining the contingent risk buffer between 5.5% to 6.5% of RBI’s balance sheet, a key factor in surplus retention and transfer decisions. The committee also recommended a quinquennial review to ensure the framework's relevance.

Looking Ahead

Governor Sanjay Malhotra highlighted the ongoing review, noting the buffer's current standing at 6.5% as of March 31, 2024. Deputy governor M Rajeshwar Rao mentioned the internal review process, indicating potential future engagements with the government or board based on findings.