Never miss a story

Get subscribed to our newsletter


×
This is broken as Rs 1,23,414 crore as surplus for year 2018-19 and another Rs 52,637 crore of excess provisions identified by the committee as per the revised Economic Capital Framework. Pixabay

The RBI board accepted the recommendations of the Bimal Jalan committee and has decided to transfer Rs 1,76,051 crore to the government. This is broken as Rs 1,23,414 crore as surplus for year 2018-19 and another Rs 52,637 crore of excess provisions identified by the committee as per the revised Economic Capital Framework (ECF).

Out of this total sum, an amount of Rs 28,000 crore has already been paid as interim dividend and already been accounted by the budget in the previous financial year. The difference in accounting is owing to the Reserve Bank of India (RBI) not following the conventional financial year of April-March thus far.


The following implications are noteworthy from a macro and markets perspective, in our view:
1. The net liquidity injection from the RBI as a result of this exercise will amount to Rs 1,48,051 crore (Rs 1,76,051 crore minus Rs 28,000 crore already paid). This is against an expectation of normal budgeted dividend of Rs 90,000 crore (assumed RBI dividend component of the Rs 1,06,042 crore budget number). We have done a forward liquidity assessment for the rest of the year in a recent note (https://www.idfcmf.com/insights/money-creation-to-pick-up-pace-an-rbi-update/).


The RBI board accepted the recommendations of the Bimal Jalan committee and has decided to transfer Rs 1,76,051 crore to the government. Pixabay

This is now updated for approximately Rs 58,000 crore of excess transfer and still leaves open market operations (OMO) purchase of bonds in play from the RBI. However, these will now probably shift to the January-March quarter and will be of a smaller amount than earlier assumed.

2. From a budget standpoint, the extra ‘windfall’ owing to the Jalan committee is Rs 58,000 crore. Given the expected revenue shortfalls in a slowing economy and especially vis-a-vis the aggressive assumptions in the budget, it would be prudent to keep this amount in order to meet the budget numbers more credibly. So far, any hope of meeting the budget targets rests on a similar expenditure compression as that undertaken last year, including via moving some items of spending ‘below the line’. Any temptation to use this amount towards a ‘fiscal stimulus’ risks regenerating worries around the quality and effectiveness towards meeting the deficit targets.

3. As pointed out by a friend of ours, the new formula for distributing future dividends potentially imposes a constraint on the quantum of such distributions. The committee has recommended ‘realized equity’ to be 6.5 to 5.5 per cent of balance sheet. It has recommended taking this to lower bound and transferring the entire excess of Rs 52,637 crore so created. Further, as per the suggested surplus distribution policy, only if realized equity is above its requirement will the entire net income 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) transferred to the government.

Within the range of contingent risk buffer (CRB), that is, 6.5 to 5.5 per cent of the balance sheet, the Central Board will decide on the level of risk provisioning. Given that provisioning is now at lower bound, future dividend transfer decisions will have to account for increasing the size of realized equity in line with the RBI’s growing balance sheet, before such pay outs can be made. This implies that such transfers are unlikely to match the substantial jump that has been recorded in the current year.

Also Read- Bolsonaro’s Response to Fires Raging in Parts of Amazon Region Causes Global Outrage

Conclusion:
Overall, the identified ‘excess’ transferable capital by the Jalan committee is only just above Rs 50,000 crore, far below the hopeful bounties being talked about. Not just that, future pay-outs are now formula driven and subject to some constraints with respect to the maintenance of a minimum CRB. However, we believe, this disappointment is blunted owing to a much higher than expected normal dividend transfer for the current year which, if used judiciously, can be invaluable in making the budget math sound more credible.

Overall though, the recommendations and their acceptance by the RBI lend credibility to India’s overall policy frameworks and institutions, especially given the history with respect to this particular debate around RBI capital. From a market standpoint, the net additional amounts involved here at just under 0.3 per cent of GDP do not really move the underlying narrative, which remains bullish for quality interest rates. (IANS)


Popular

IANS

K'taka Hijab Row Triggers Debate.

By M.K. Ashoka

The issue of wearing a hijab (head covering worn in public by Muslim women) to the colleges along with the uniform has sparked a debate in Karnataka over religious practices impacting the education system in the state. The matter has also snowballed into a controversy on whether the hijab could be considered as part of the uniform. The ruling BJP is deliberating on whether to take a call on allowing hijab as part of the uniform of college students. State Education Minister B.C. Nagesh, while opposing the wearing of hijab to classrooms, has said that a decision would be taken on the issue soon by the government.

The experts as well as students are divided over the issue. Those who are in favour state that the dress code in classrooms should not indicate faith or religion as it creates barriers between students as well as teachers. Those who support the wearing of hijab say that hijab should be treated as a scarf. Hijab is black in colour and it can't be a religious symbol as Islam is identified with the green colour. The hijab should be treated as a symbol of chastity, they maintain.

The denial of permission to six girls in the Government Girls' Pre University College in the communally sensitive district of Udupi in the state has created a controversy. Nagesh dubbed it as a political move and questioned whether centres of learning should become religious centres. Meanwhile, the girl students have decided to continue their protest until they are allowed to attend classes wearing hijab.

Keep Reading Show less

Police have come under sustained attack around the country. | Unsplash

An Indian-American police officer, who has been on the job for just over six months, is being hailed a hero for rushing to neutralize a gunman who shot a police officer and wounded another. Sumit Sulan, 27, shot the assailant who surprised the officers opening fire on them in his mother's flat on January 21 where police were called because of a domestic dispute. Jason Rivera, 22, was killed and Wilbert Mora, 27, was wounded, but Sulan who was in the police party advanced and shot the alleged gunman, Lashawn McNeil, 47, according to police.

Also Read : Police in Spain distribute masks to commuters

Keep Reading Show less
IANS

The most common allergen in India are milk, egg and peanuts.

By Dr Nidhi Gupta

Motherhood comes with its own mixed bag of emotions; we want to save our child from every little peril that comes their way, including allergies. The most common allergen in India are milk, egg and peanuts. According to the IAP survey, 11.4 per cent children under the age of 14 years suffer from some form of allergies and they usually peak around the month of May.

The symptoms of allergy range from runny nose, sneezing, coughing, rashes, watery and red eyes to swollen tongue and breathing difficulties. A child experiences serious discomfort and it leaves the parents hopeless at times. Allergies develop slowly over time; parents need to have patience and commitment towards managing them. However, there are certain ways in which we, as parents, can contribute in prevention and possible alleviation of the problems.

* Do Not Stress

Staying stress-free and calm is very important during this time. Creating panic will only add to the misery. Once we know about the symptoms, our mandate must be to keep a first-aid antiallergic kit at home. We can make this kit with the help of our paediatrician.

Keep reading... Show less