Mumbai: The Reserve Bank of India’s excess capital is estimated to be between 1 trillion rupees and 3 trillion rupees, Bank of America Merrill Lynch has said in a report released on Thursday, reports Cogencis.
According to the report, if contingency reserves are capped at 3.5%, as against 6.2% currently, India’s central bank would be able to release around 1 trillion rupees. The contingency reserves, at 6.2%, are far higher than the average of 2% in countries such as Brazil, Russia, China and South Africa, the report said The report also goes on to say that if the yield hike cover is adjusted to 4.5%, from 9% currently, the RBI would be able to release 1.16 trillion rupees.
According to estimates, if the reserves of the central bank are capped at 20% compared to 26.7% currently, the central bank would be able to release 2.54 trillion rupees. The Usha Thorat committee, in 2004, had proposed an 18% buffer of total reserves, while the Subrahmanyam committee, in 1997, had targeted 17% of the balance sheet as reserves. Bank of America Merrill Lynch, in its report, has also argued that the RBI has no restrictions on transfers to the central government as long as the latter maintains 50 million rupees of reserve fund.