Govt wants Rs 3.6 lakh crore from RBI, a third of its reserves, central bank says no

[Mitron]

Govt wants Rs 3.6 lakh crore from RBI, a third of its reserves, central bank says no

 

At the heart of the RBI-government standoff is a proposal by the Finance Ministry seeking to transfer a surplus of Rs 3.6 lakh crore, more than a third of the total Rs 9.59 lakh crore reserves of the central bank, to the government. The ministry has suggested that this surplus can be managed jointly by the RBI and the government.

The Finance Ministry claims that the existing economic capital framework — which governs the RBI’s capital requirements and terms for the transfer of its reserves to the government — is based on a very “conservative” assessment of risk by the central bank.

Sources have confirmed to The Indian Express that the RBI views this attempt by the Government to dip into its reserves can adversely impact macro-economic stability. And so the RBI has not accepted the proposed changes, sources said.

Express Explained | How RBI surplus transfers work

For its part, the Finance Ministry argues that the current framework was “unilaterally” adopted by the RBI in July 2017 because both the government nominees on the Board were not present during the meeting. The government did not accede to this framework and has since then been constantly seeking discussions with the RBI.

The government is of the view that RBI has over-estimated its capital reserves requirements resulting in excess capital of Rs 3.6 lakh crore.

That’s why, sources said, the government has proposed that the use of these funds be decided in consultation with the RBI. These funds can be used, for example, to recapitalise public sector banks, help them expand their loan book and come out of the Prompt Corrective Action framework.

The RBI, however, feels strongly that using central bank reserves has pitfalls. In its opinion, this does not tantamount to any fresh income, and was essentially in the nature of issuing new securities to fund government expenditure. Not only does it hurt the government’s commitment to fiscal prudence, it also affects the confidence of the financial markets.

The finance ministry has also raised objections to the staggered surplus distribution policy (SSDP) of the central bank, under which the RBI transfers its surplus to the government. The ministry’s view is that RBI has been “conservative” and at times “arbitrary,” especially when it came to the transfer of the interim surplus.

Sources said the ministry proposed that from 2017-18, the RBI should transfer the entire surplus to the government after taking into account its capital requirement. This is another area where the government and the RBI differ.

In 2017-18, the RBI transferred a surplus of Rs 50,000 crore to the government (comprising an interim transfer of Rs 10,000 crore), up from Rs 30,659 crore in 2016-17, but lower than in the previous three years.

The government believes that, when compared with global central banks, the RBI holds much higher total capital as a percentage of its total assets (at about 28 per cent).

Countries including the US, the UK, Argentina, France, Singapore maintain much lower capital as a percentage of total assets, while the same for countries including Malaysia, Norway and Russia are much higher than India.

The RBI maintains various types of reserves to cover various risks including market risk, operational risk, credit risk and contingency risk. For the year ending June 2018, RBI had total reserves of Rs 9.59 lakh crore, comprising mainly currency and gold revaluation account (Rs 6.91 lakh crore) and contingency fund (Rs 2.32 lakh crore).

While Contingency Fund represents the provisions made for unforeseen contingencies, the Currency and Gold Revaluation Account represent unrealised marked to market gains/losses.

In his speech on October 26, which brought into open the tussle between the finance ministry and the central bank, RBI Deputy Governor Viral Acharya said how a transfer of excess reserves from a central bank to government can be “catastrophic,” as had been proven in the case of Argentina. The transfer of $6.6 billion of its central bank’s reserves to the national treasury, sparked off “the worst constitutional crises in Argentina and led to “a grave reassessment of its sovereign risk”, Acharya asserted.

To buttress his point, Acharya quoted former Deputy Governor Rakesh Mohan to warn against the pitfalls of the government using central bank’s reserves. “The longer-term fiscal consequences would be the same if the government issued new securities today to fund the expenditure. (Raiding) the RBI’s capital creates no new government revenue on a net basis over time, and only provides an illusion of free money in the short term.”

Last Wednesday, the finance ministry said that the autonomy for the RBI “is an essential” and both the government and the RBI have to be “guided by public interest and the requirements of the Indian economy”. The government tried to defuse the tension in its relations with the RBI, which soured over the ministry starting consultations over a range of issues with the central bank under the Section 7 of the RBI Act.

Queries sent to the finance ministry and the RBI seeking comments for the story did not elicit any response.

Many economists and expert committees have in the past argued that the RBI is holding much higher capital that required to cover all its risks and contingencies. Former Chief Economic Adviser Arvind Subramanian said in Economic Survey2016-17 that the RBI is “is already exceptionally highly capitalized” and nearly Rs 4 lakh crore of its capital transfer to the government can be used for recapitalizing the banks and/or recapitalizing a Public Sector Asset Rehabilitation Agency. This proposal was opposed by the then RBI Governor Raghuram Rajan.

The Malegam Committee in 2013 estimated that the RBI was holding Rs 1.49 lakh crore of reserves and buffers in excess of its requirements.

https://indianexpress.com/article/india/govt-wants-rs-3-6-lakh-crore-from-rbi-a-third-of-its-reserves-central-bank-says-no-5435504/

[Mitron]

Centre Will Push RBI to Hand Over Rs 3.6 Lakh Crore Even if It Makes Urjit Patel Resign: Report

 

While there appeared to be a partial truce last week when the government said it respected the autonomy of the Reserve Bank of India (RBI), sources said the government will turn up the heat at the bank's central board of directors meeting on November 19.

 

New Delhi/Mumbai: The Centre intends to keep pressing demands for the country's central bank to relax lending curbs and hand over surplus reserves even if it risks provoking a resignation by the bank's governor, three sources familiar with the government's thinking told Reuters.

While there appeared to be a partial truce last week when the government said it respected the autonomy of the Reserve Bank of India (RBI), the sources said the government will turn up the heat at the bank's central board of directors meeting on November 19.

 

 

 

And RBI Governor Urjit Patel will be a key focus of the pressure from a group of directors who support the government's position, according to the New Delhi-based sources, who declined to be named due to the sensitivity of the matter.
 

 

"We want the RBI governor to accept the priorities of the economy and to discuss these with board members," said one of the sources, a senior government official with direct knowledge of deliberations. "If he wants to take decisions unilaterally, it will be better for him to quit."
 

 

Investors and traders warn that if Patel quits it will create uncertainty and undermine India's already-weak financial markets. They have been hurt in recent weeks because of defaults by a major financing company.

A finance ministry spokesman declined to comment for this story. The RBI did not respond to an email seeking comment.

“POTENTIALLY CATASTROPHIC”

Tensions between the two sides came to the fore last month when RBI Deputy Governor Viral Acharya gave a speech that blew the lid off a fractious dispute between the bank and the government of Prime Minister Narendra Modi on issues ranging from lending curbs to who controls the institution's reserves.

Acharya said that undermining central bank independence could be “potentially catastrophic”, and he even cited meddling by the Argentine government in the affairs of its central bank in 2010 – prompting big drops in that nation’s financial markets - as a sign of how bad things can get.

For its part, government officials say they have been increasingly frustrated by the intransigence of Patel and his team to address its demands and engage in constructive dialogue.

The RBI has consistently pushed back against calls from the government to hand over more money from its reserves to help fund the fiscal deficit.

The Finance Ministry is seeking to transfer a surplus of Rs 3.6 lakh crore, more than a third of the total Rs 9.59 lakh crore reserves of the central bank, to the government.

The government feels RBI has over-estimated its capital reserves requirements resulting in excess capital of Rs 3.6 lakh crore.

That’s why, it has proposed these funds be used to recapitalise public sector banks, help them expand their loan book and come out of the Prompt Corrective Action framework.

The RBI, however, feels strongly that using central bank reserves has pitfalls. 

The ruling BJP is also keen to reduce curbs on the shadow banking sector and increase overall lending to small and medium-sized businesses. The aim is to help offset economic headwinds from low farm prices and high fuel prices ahead of a general election due by next May and key state elections in a few weeks.

"We will do everything to protect the interests of the economy," one of the members of the RBI central board told Reuters, noting the governor and his team would have to "explain, defend and justify" their decisions at the board meeting.

It is unclear, though, how the government will seek to exert pressure through the RBI's Central Board as the body is a largely symbolic one, which has never had a direct say in the bank's directives and policies, according to two additional sources with knowledge of the law under which the central bank operates.

"The role of the board has typically been to supervise the workings of the RBI, like internal audit and recruitment. But the RBI is not really accountable to the board for regulatory and operational issues," said one of the sources, saying this would only change if the government invokes Section 7 of the RBI Act allowing it to dictate policy to the central bank.

"We don't know whether the board will supersede the RBI in that case," said the source. "This kind of situation has never arisen before."

Still, the government sources say they will find ways to increase pressure on the RBI and Patel via the board before moving to invoke Section 7.

"Patel and his team must recognise the period of an invisible RBI board is over," one of the New Delhi-based sources said, noting that the RBI will sooner or later have to fall in line.

Patel's predecessor Raghuram Rajan defended the RBI's call for autonomy saying that the central bank's responsibility is to secure financial stability and it has the right to say "no" to government proposals that could lead to instability.

"The RBI is something like a seatbelt," Rajan, who is a professor at the University of Chicago Booth School of Business, told CNBC-TV18.

"As a driver, being the government, it has the possibility of not putting on the seatbelt, but of course, if you don’t put on the seatbelt, you can get into an accident which can be quite severe," he said. 

NR Bhanumurthy, an economist at the National Institute of Public Finance and Policy, a New Delhi-based think tank that is partly funded by the finance ministry, said the RBI and the government were dealing with the same problem though there was a difference of opinion on how to solve it.

"While the government is looking for short-term solutions, the RBI is focused on long term solutions," he said, adding that despite disagreements, both could resolve their differences. "If the RBI governor is forced to resign, it will be a huge setback for the economy."

 

https://www.news18.com/news/business/centre-will-push-rbi-to-hand-over-rs-3-6-lakh-crore-even-if-it-makes-urjit-patel-resign-report-1931839.html

[Mitron]

November 19 . Patel resign ?? 

@Kool_SRG enti news db lo share cheyyale.. 3 days nunchi full gola kada !!

[Mitron]

@kevinUsa  paisal ready chesko tondarapadi transfer chesevu.

[Mitron]

10 hours ago, Mitron said:

November 19 . Patel resign ?? 

@Kool_SRG enti news db lo share cheyyale.. 3 days nunchi full gola kada !!

@Kool_SRG

[Idassamed]

Idantha Operation Garuda 

[kevinUsa]

11 hours ago, Mitron said:

@kevinUsa  paisal ready chesko tondarapadi transfer chesevu.

waiting baa 

50bn $$  economy sarigga manage cheyadam radu kani central bank enduku ivvali 

poyi IMF daggra appu tesukovali ee lolli anta enduku ??

 sure next year BJP  radu guarantee 

I think never in history of India govt asked RBI so much money.

correct me if I am wrong.

 I eagerly waiting for EX RBI heads to step in 

manmohan singh  yv reddy  subbarao  raghu ram rajan 

 

[Kool_SRG]

12 hours ago, Mitron said:

November 19 . Patel resign ?? 

@Kool_SRG enti news db lo share cheyyale.. 3 days nunchi full gola kada !!

 

1 hour ago, Mitron said:

@Kool_SRG

Inka confirm kaadu ga although it looks to happen antuke 

[JANASENA]

49 minutes ago, kevinUsa said:

waiting baa 

50bn $$  economy sarigga manage cheyadam radu kani central bank enduku ivvali 

poyi IMF daggra appu tesukovali ee lolli anta enduku ??

 sure next year BJP  radu guarantee 

I think never in history of India govt asked RBI so much money.

correct me if I am wrong.

 I eagerly waiting for EX RBI heads to step in 

manmohan singh  yv reddy  subbarao  raghu ram rajan 

 

9

scam lu chese scamgress ke 2 times power icharu janalu, idantha oka lekka na jujubi easy peasy ga vasthundi b`

[kevinUsa]

12 hours ago, Mitron said:

@kevinUsa  paisal ready chesko tondarapadi transfer chesevu.

monnane oka 3 acres chusa vadu 10l annadu na daggar oka 7l undi  ma nanna 

3 iste naku kuda 3 acres land untadi 

[kittaya]

12 hours ago, Mitron said:

Govt wants Rs 3.6 lakh crore from RBI, a third of its reserves, central bank says no

 

At the heart of the RBI-government standoff is a proposal by the Finance Ministry seeking to transfer a surplus of Rs 3.6 lakh crore, more than a third of the total Rs 9.59 lakh crore reserves of the central bank, to the government. The ministry has suggested that this surplus can be managed jointly by the RBI and the government.

The Finance Ministry claims that the existing economic capital framework — which governs the RBI’s capital requirements and terms for the transfer of its reserves to the government — is based on a very “conservative” assessment of risk by the central bank.

Sources have confirmed to The Indian Express that the RBI views this attempt by the Government to dip into its reserves can adversely impact macro-economic stability. And so the RBI has not accepted the proposed changes, sources said.

Express Explained | How RBI surplus transfers work

For its part, the Finance Ministry argues that the current framework was “unilaterally” adopted by the RBI in July 2017 because both the government nominees on the Board were not present during the meeting. The government did not accede to this framework and has since then been constantly seeking discussions with the RBI.

The government is of the view that RBI has over-estimated its capital reserves requirements resulting in excess capital of Rs 3.6 lakh crore.

That’s why, sources said, the government has proposed that the use of these funds be decided in consultation with the RBI. These funds can be used, for example, to recapitalise public sector banks, help them expand their loan book and come out of the Prompt Corrective Action framework.

The RBI, however, feels strongly that using central bank reserves has pitfalls. In its opinion, this does not tantamount to any fresh income, and was essentially in the nature of issuing new securities to fund government expenditure. Not only does it hurt the government’s commitment to fiscal prudence, it also affects the confidence of the financial markets.

The finance ministry has also raised objections to the staggered surplus distribution policy (SSDP) of the central bank, under which the RBI transfers its surplus to the government. The ministry’s view is that RBI has been “conservative” and at times “arbitrary,” especially when it came to the transfer of the interim surplus.

Sources said the ministry proposed that from 2017-18, the RBI should transfer the entire surplus to the government after taking into account its capital requirement. This is another area where the government and the RBI differ.

In 2017-18, the RBI transferred a surplus of Rs 50,000 crore to the government (comprising an interim transfer of Rs 10,000 crore), up from Rs 30,659 crore in 2016-17, but lower than in the previous three years.

The government believes that, when compared with global central banks, the RBI holds much higher total capital as a percentage of its total assets (at about 28 per cent).

Countries including the US, the UK, Argentina, France, Singapore maintain much lower capital as a percentage of total assets, while the same for countries including Malaysia, Norway and Russia are much higher than India.

The RBI maintains various types of reserves to cover various risks including market risk, operational risk, credit risk and contingency risk. For the year ending June 2018, RBI had total reserves of Rs 9.59 lakh crore, comprising mainly currency and gold revaluation account (Rs 6.91 lakh crore) and contingency fund (Rs 2.32 lakh crore).

While Contingency Fund represents the provisions made for unforeseen contingencies, the Currency and Gold Revaluation Account represent unrealised marked to market gains/losses.

In his speech on October 26, which brought into open the tussle between the finance ministry and the central bank, RBI Deputy Governor Viral Acharya said how a transfer of excess reserves from a central bank to government can be “catastrophic,” as had been proven in the case of Argentina. The transfer of $6.6 billion of its central bank’s reserves to the national treasury, sparked off “the worst constitutional crises in Argentina and led to “a grave reassessment of its sovereign risk”, Acharya asserted.

To buttress his point, Acharya quoted former Deputy Governor Rakesh Mohan to warn against the pitfalls of the government using central bank’s reserves. “The longer-term fiscal consequences would be the same if the government issued new securities today to fund the expenditure. (Raiding) the RBI’s capital creates no new government revenue on a net basis over time, and only provides an illusion of free money in the short term.”

Last Wednesday, the finance ministry said that the autonomy for the RBI “is an essential” and both the government and the RBI have to be “guided by public interest and the requirements of the Indian economy”. The government tried to defuse the tension in its relations with the RBI, which soured over the ministry starting consultations over a range of issues with the central bank under the Section 7 of the RBI Act.

Queries sent to the finance ministry and the RBI seeking comments for the story did not elicit any response.

Many economists and expert committees have in the past argued that the RBI is holding much higher capital that required to cover all its risks and contingencies. Former Chief Economic Adviser Arvind Subramanian said in Economic Survey2016-17 that the RBI is “is already exceptionally highly capitalized” and nearly Rs 4 lakh crore of its capital transfer to the government can be used for recapitalizing the banks and/or recapitalizing a Public Sector Asset Rehabilitation Agency. This proposal was opposed by the then RBI Governor Raghuram Rajan.

The Malegam Committee in 2013 estimated that the RBI was holding Rs 1.49 lakh crore of reserves and buffers in excess of its requirements.

https://indianexpress.com/article/india/govt-wants-rs-3-6-lakh-crore-from-rbi-a-third-of-its-reserves-central-bank-says-no-5435504/

RBI Ni kollagottandhe modhi team ki nidra raadhu gaa

[Idassamed]

Inko sance ivvandi vaa BJP ki. 

[Kool_SRG]

6 minutes ago, kevinUsa said:

monnane oka 3 acres chusa vadu 10l annadu na daggar oka 7l undi  ma nanna 

3 iste naku kuda 3 acres land untadi 

[Mitron]

40 minutes ago, JANASENA said:

scam lu chese scamgress ke 2 times power icharu janalu, idantha oka lekka na jujubi easy peasy ga vasthundi b`

70 years

[Mitron]

12 minutes ago, kevinUsa said:

monnane oka 3 acres chusa vadu 10l annadu na daggar oka 7l undi  ma nanna 

3 iste naku kuda 3 acres land untadi 

ba ye oorlo... naku land ledu... konukkovalani eppatinuncho aasha