RBI to the rescue, again – The Hindu BusinessLine

Clipped from: https://www.thehindubusinessline.com/opinion/editorial/the-centre-cannot-be-grudged-the-large-surplus-transfer-from-the-rbi-but-prudence-is-important/article34651731.ece?homepage=true

The Centre cannot be grudged large surplus transfer from the RBI, but prudence is important

The transfer of ₹99,122 crore of its surplus by the Reserve Bank of India to the Centre for the nine-month period from July 2020 to March 2021 is no doubt a shot in the arm for the latter’s finances. With tax revenues set to contract due to the pandemic, the funds received from the RBI will be handy in bridging the fiscal gap to some extent. The funds will also be useful to meet the additional expenditure incurred in combating the healthcare emergency in the country and to provide relief to the affected segments. That said, the quantum of the transfer, that too for a nine-month period, raises red flags. While the RBI’s Annual Report for 2020-21, which is yet to be published, will give a better picture about the manner in which the surplus was generated, there is a significant increase in the sum transferred, when compared to the ₹53,510 crore that was budgeted by the Centre.

Also, it’s a trifle worrying to see that the RBI is preferring to maintain risk provisioning at 5.5 per cent of its balance sheet, which is the lower of the 6.5-5.5 per cent band recommended by the Bimal Jalan committee in 2019. Transfers to this reserve have been declining from around 10 per cent of balance sheet, prior to 2013, to under 6 per cent since 2019. With the monetary and financial stability risks and credit risks at an elevated level due to the uncertainty regarding the successive waves of the pandemic, the central bank could have adopted a more conservative approach to maintaining its contingency reserve.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s