In News:

• The board of Reserve Bank of India decided to transfer an interim surplus (dividend) of Rs. 28,000 crores to the government.

Explained:

• Inclusive of the Rs. 40,000 crores transferred by the central bank as final dividend for 2017-18, the Centre has earned a total of Rs. 68,000 crores as dividend from the RBI for the 2018-19 fiscal. The accounting year of the RBI runs from July to June.
• This is second consecutive year that the central bank has transferred interim surplus to the government. Based on a limited audit review and after applying the extant economic capital framework, the board decided to transfer an interim surplus of Rs. 280 billion to the Central government for the half-year ended December 31, 2018.
• This is the second successive year that the Reserve Bank will be transferring an interim surplus
• The system of audit of balance sheet twice a year would be continued for the coming years also in order to decide on the interim surplus. Last year, RBI had transferred Rs. 10,000 crore as interim surplus.
• The government had been putting pressure on the central bank to transfer more funds from the contingency reserves. A panel, headed by former RBI Governor Bimal Jalan, had been formed to review the economic capital framework of the bank.

Economic Capital framework Committee:

• The Reserve Bank of India (RBI), in consultation with the government, has set up a six-member committee to review the economic capital framework of the central bank
• Former RBI Governor Bimal Jalan will be the committee’s chairman and former Deputy Governor Rakesh Mohan deputy chairman.
• The other members are Economic Affairs Secretary Subash Chandra Garg, RBI Deputy Governor N.S. Vishwanathan and two board members of the RBI
• The committee would submit its report within 90 days from the date of its first meeting, the RBI said in a statement

Term of reference of Committee:

• It would be to review status, need and justification of various provisions, reserves and buffers presently provided for by the RBI, keeping in mind ‘public policy mandate of the RBI, including financial stability considerations.

The committee will also review best practices followed by the central banks globally in making assessment and provisions for risks, to which central bank balance sheets are subjected. The panel would also suggest an adequate level of risk provisioning that the RBI needs to maintain, and to determine whether it is holding provisions, reserves and buffers in surplus or deficit of the required level.

• The committee would also propose a suitable profit distribution policy taking into account all the likely situations of the RBI, including holding more provisions than required and the RBI holding less provision than required, the statement said.
• After the government started pushing the central bank to review its economic capital framework, the RBI board, at its meeting on November 19, decided to set up a committee to review the issue.
• The economic capital issue was a bone of contention, among other issues, between the central bank and the Finance Ministry.