As the Bimal Jalan Committee prepares to submit its report on RBI’s economic capital framework, a report by Bank of America Merrill Lynch (BofAML) has said the excess reserves that the central bank holds could be up to ₹3 lakh crore or 1.5% of the GDP.
“Our stress tests estimate RBI’s excess capital at ₹1,000-₹3,000 billion,” the report said.
The Jalan Committee was set up in end-December and is expected to submit its report within 90 days of its first meeting. RBI Governor Shaktikanta Das had said during the post-monetary policy interaction on April 4 that the deliberations were in advanced stages and it would require ‘a few more days’ to finalise the report.
If the contingency reserves are halved to 3.25% from the current 6.5%, it would release ₹1.282 lakh crore — still 50% higher than what central banks in the BRICS grouping have.
Similarly, halving the yield cover hike to 4.5% from the present 9% would release another ₹1.17 lakh crore, the report said.
BofAML further said capping the overall reserves at 20% from the present 25.5% will release ₹1.96 lakh crore which is higher than the 2004 Usha Thorat Committee’s recommendation of 18% and 16% that the Economic Survey 2018 had pegged. The report further noted that using the excess capital for bank recapitalisation would be liquidity neutral and could also aid in making rate cuts.