RBI's Economic Capital Framework Under Scrutiny

Reserve Bank Governor Sanjay Malhotra has announced an internal review of the central bank's economic capital framework, which dictates surplus transfers to the government. This review follows recommendations by the Bimal Jalan-led committee for periodic assessments. Currently, a contingency buffer is maintained at a maximum of 6.5% of the RBI's balance sheet.

Reserve Bank Governor Sanjay Malhotra announced on Friday that the central bank is conducting an internal review of its economic capital framework (ECF), initially established by the Bimal Jalan-led committee. This review is mandatory every five years, as prescribed by the six-member panel, according to Malhotra.

The review will reassess the framework for the Reserve Bank of India's surplus transfers to the government, which include a contingency risk buffer designed to protect against unforeseen monetary challenges and the depreciation of securities. This buffer currently amounts to 6.5% of the RBI's balance sheet.

Malhotra emphasized that despite external uncertainties facing the country, this review should not be interpreted as a precursor to increasing the buffer. Last year, the central bank transferred a record Rs 2.11 lakh crore in surplus to the government.

(With inputs from agencies.)