Written by Talent KAS

Related Topics: Fiscal Stimulus, Bimal Jalan Committee


  • Reserve Bank of India (RBI) has decided to transfer ₹1.76 lakh crore to the Centre — including interim dividend of ₹28,000 crore paid in February, 2019.
  • The ₹1.76 lakh crore includes the central bank’s 2018-19 surplus of ₹1.23 lakh crore and ₹52,637 crore of excess provisions identified as per the revised Economic Capital Framework (ECF) adopted at the Board meeting.
  • As financial resilience was within the desired range, RBI decided to transfer the entire 2018-19 net income of ₹1.23 lakh crore.

Bimal Jalan Committee

  • RBI had formed a committee chaired by former Governor Bimal Jalan to review its Economic Capital Framework and suggest the quantum of excess provision to be transferred to the government.
  • The committee was formed after a demand from the government for more money.
  • The RBI Board has accepted all the recommendations of the Jalan committee.
  • The committee’s recommendations were guided by the fact that the RBI forms the primary bulwark for monetary, financial and external stability.

Two components of Economic Capital

  • The committee recommended a clear distinction between the two components of economic capital – realized equity and revaluation balances.
  • It was recommended that

(i) Realized equity could be used for meeting all risks/ losses as they were primarily built up from retained earnings

(ii) Revaluation balances could be reckoned only as risk buffers against market risks as they represented unrealized valuation gains and hence were not distributable.

  • The committee recognized that RBI’s provisioning for monetary, financial and external stability risks is the country’s savings for a ‘rainy day’, (a monetary or financial stability crisis), which has been consciously maintained with the RBI in view of its role as the Monetary Authority and the Lender of Last Resort.
  • The ‘Surplus Distribution Policy’, as recommended by the committee, says only if realized equity is above its requirement, the entire net income will be transferable to the Government.
  • If it is below the lower bound of requirement, risk provisioning will be made to the extent necessary and only the residual net income (if any) will be transferred to the Government.

Mathematics behind RBI’s Rs 1.76 lakh crore Surplus Transfer

Where Rs 52,637 crore came from?

  • The ‘realized equity’ is the risk provisioning made primarily from retained earnings referred to as the Contingent Risk Buffer (CRB).
  • This is essentially the existing amount in the RBI’s Contingency Fund (CF).
  • The Jalan panel has recommended that the CF be maintained within a range of 6.5 per cent to 5.5 per cent of the RBI’s balance sheet.
  • This comprises 5 to 4.5% for monetary and financial stability risks and 1.0% for credit and operational risks.
  • The current CF outstanding stood at 8 per cent of the RBI’s balance sheet and hence, the excess from the pre-decided range of 5.5-6.5 per cent is written back.
  • Here, the panel decided to go with the lower threshold of 5.5 per cent and hence the excess Rs 52,637 crore has been written back (to be transferred to the Centre).

Where Rs 1,23,414 crore came from?

  • At the aggregate level, the committee suggests maintaining economic capital— realized equity and revaluation balances —at a range of 5 per cent to 20 per cent of balance sheet.
  • Since it stood at 23.3 per cent as of June 2019—within the desired range, the entire net income of the RBI of Rs 1,23,414 crore for the fiscal (without transferring to the CF) has been transferred to the Centre as surplus.


  • Central government has set a fiscal deficit target of 3.3% of gross domestic product for the current fiscal, revised downward from 3.4% pegged in the interim budget in February.
  • Over Rs 65,000 crore of additional non-tax revenues (than what was budgeted for FY20) on account of the RBI’s dividend, can make up for the shortfall in the Centre’s tax collections to a great extent.
  • The transfer of surplus from RBI will aid the government in meeting its fiscal deficit target.


  • The Jalan panel has chosen to opt for a lower 5 per cent level for the CF (as against the upper end of 6.5 per cent).
  • This is the lowest level that the RBI has maintained thus far under the fund.
  • This lowers the RBI’s flexibility to manoeuvre in future.

Way Forward

  • The manner in which the funds are used will be critical.
  • The share of capital expenditure as a per cent of GDP has been falling in recent years.
  • In India, the bulk of government spending is mostly biased towards boosting consumption rather than investments.
  • This time, the Centre will need to put the RBI’s surplus funds to productive use that can have a sustainable multiplier impact on overall growth in the economy.

[Sources: The Hindu, Livemint, Hindu Business Line]


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