India wants part of RBI’s surplus reserves

NEW DELHI: India’s government is asking the central bank to hand over a part of its surplus reserves to put that to more productive use, said an official .

The matter is pending before the board of the Reserve Bank of India (RBI) and is likely to be taken up again at its next meeting likely on November 19, the official said. The norms for sharing excess capital reserves should be set in line with established global practices, the official added.

The government’s demand is expected to further fuel tensions with the RBI, which has been pushing back any moves that curtail the central bank’s independence. The finance ministry last week said it respects the autonomy of monetary authority, but only after differences over handling of weak state-run lenders and tight liquidity in the market spilled out to the open.

Most central banks around the world keep 13 to 14 per cent of their assets as reserve, compared with the RBI’s 27 percent, the official said.

Arvind Subramanian, former chief economic adviser to the government, had argued in his Economic Surveys that the central bank was sitting on too much capital and “assuming that the RBI returns four trillion rupees of capital to the government” it could be put to productive use.

Last year, the RBI parted with 100 billion rupees (RM5.8 billion) more as interim dividend — an idea opposed by governor Urjit Patel as he seeks to strengthen the central bank’s balance sheet to prepare for contingencies.