RBI's surplus violated recommendations: Garg

In its transfer of surplus to the government for 2020-21 (Jul-Mar), the Reserve Bank of India has violated the recommendations of the Bimal Jalan committee, former finance secretary Subhash Garg has said.

Garg, who took voluntary retirement from the civil services in 2019 after an unceremonious exit from the finance ministry, said the transfer of 991.22 bln rupees by the RBI in May violated the committee's recommendations on two counts-transfer to the Contingency Fund and transfer of money from revaluation reserves.

According to Garg, the RBI's Contingency Fund should have been at 3.04 trln rupees as on Mar 31 had it carried out risk provisioning as per the recommendations of the Jalan panel.

"RBI has chosen to maintain it at only 2.85 trln rupees for some reasons which have not been explained. Even for maintaining the

Contingency Fund at 2.85 trln rupees, RBI required 205.08 bln rupees to be transferred to it. RBI has clearly struggled to keep the facade of maintaining realised equity of 5.5% to 6.5% of the balance sheet assets size," Garg said in a note.

Before his exit from the finance ministry, Garg was part of the Bimal Jalan-led expert committee to review the RBI's economic capital framework.

The committee submitted its report in August 2019, with the Reserve Bank of India accepting its recommendations. One of the recommendations the committee had made was for the RBI to maintain a contingency risk buffer of 5.5-6.5% of its total balance sheet.