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RBI constitutes Expert Committee on Economic Capital Framework
RBI constitutes Expert Committee on Economic Capital Framework: Details, Features, Objective, Highlights
The Reserve Bank of India (RBI) on 27th December 2018 has constituted a panel on the economic capital framework. It will be headed by Ex-RBI governor Bimal Jalan.
The expert panel on RBI’s economic capital framework has been formed to address the issue of RBI reserves-one of the sticking points between the central bank and the government.
The government has been insisting that the central bank hand over its surplus reserves amid a shortfall in revenue collections. Access to the funds will allow the government to meet deficit targets, infuse capital into weak banks to boost lending and fund welfare programmes.
The decision regarding the constitution of the Committee was taken by the Central Board of Reserve Bank of India (RBI) in its meeting held on 19th November 2018.
Key Objectives
1. The expert panel will decide whether RBI is holding provisions, reserves, and buffers in a surplus of the required levels.
2. It would propose a suitable profits distribution policy taking into account all the likely situations of the RBI, including the situations of holding more provisions than required and the RBI holding fewer provisions than required.
3. The ECF committee will also suggest an adequate level of risk provisioning that the RBI needs to maintain. That apart, any other related matter, including treatment of surplus reserves created out of realized gains, will also come within the ambit of this committee.
About Economic Capital Framework
Economic capital framework refers to the risk capital required by the central bank while taking into account different risks. The economic capital framework reflects the capital that an institution requires or needs to hold as a counter against unforeseen risks or events or losses in the future.
