The Reserve Bank of India (RBI) has “more than adequate” reserves and it can transfer over ₹1 trillion to the government after a specially-constituted panel identifies the “excess capital,” says a report.
“We expect the proposed committee on the RBI’s economic capital framework (ECF) to identify ₹1-3 trillion, which is 0.5-1.6% of GDP, as excess capital,” analysts at Bank of America Merrill Lynch said in a note Monday.
Contingency reserve
The brokerage report said as per its stress tests, the central bank can transfer ₹1 trillion to the government if the transfer is limited to passing excess contingency reserve and can go up to ₹3 trillion if the total capital is included.
Giving a break-up, the report said ₹1.05 trillion can be transferred if the contingency reserve is capped at 3.5% of the RBI book. This level will be 75% higher than the average of BRICS economies, excluding India.
Additional forms of transfers can include ₹1.16 trillion from the contingency reserves if one restricts to yield rise of 4.5% against 9% at present.
Limiting the appreciation cover in RBI’s currency and gold revaluation account to 25% (₹53.25 per U.S. dollar) will release about ₹72,000 crore to the government.
The report also said capping the overall reserves at 20% of the RBI’s book as against 28.3% now and higher than 18% recommended by the Usha Thorat panel will be able to release ₹3.11 trillion.
