Moneycontrol
Last Updated : Nov 09, 2018 08:13 PM IST | Source: Moneycontrol.com

Law doesn't allow transfer of RBI reserves to govt: YH Malegam

The Act would have to be amended for the RBI to start transferring its surplus from previous years to the government, Malegam said

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With the government and the Reserve Bank of India being at loggerheads over issues such as allocation of the central bank's capital, former RBI board member YH Malegam said there is no provision in the RBI Act that says the central bank's reserves can be paid to the government.

The Act would have to be amended for the RBI to start transferring its surplus from previous years to the government, Malegam told CNBC-TV18 in an interview, as it only provides that all of the central bank's surplus in a year, after provisions, should be transferred.

He added that it would be difficult to quantify a percentage amount for how much of RBI's profits should be transferred to its reserves.

The RBI distributes a part of the profits it generates as dividends to the government while transferring the rest to its reserves.

Malegam was on the RBI board for 17 years and has chaired several committees for the central bank. He is also a former chairman of the Institute of Chartered Accountants of India.

RBI and the central government are currently involved in a standoff and according to various reports, a major bone of contention between the two is that the government wants the central bank to part with a third of its Rs 9.6 lakh crore reserves.

It was also reported that the government wants the RBI to start paying a higher share of its profits as dividend, something that the central bank is reluctant to do because it wants to keep its profits in order to bolster its balance sheet.

Malegam observed that if the RBI has a strong balance sheet, it gives a strong impression about the rupee.

However, the government clarified earlier today that the above-mentioned reports were a product of speculation and that it had no such demand from the RBI.

"[A] lot of misinformed speculation is going around in media. The government’s fiscal math is completely on track. There is no proposal to ask RBI to transfer 3.6 or 1 lakh crore, as speculated," Subhash Chandra Garg, Secretary of the Department of Economic Affairs, tweeted.

The RBI board is likely to discuss capital framework and other issues at its meeting scheduled for November 19. Malegam stressed that the board cannot decide to allow something that the law did not permit.

The central bank expert said that the RBI board and the RBI governor have concurrent powers and that the board can only offer guidance to the governor and cannot suo motu direct him/her to do something.

He said he wasn't aware of any regulation that allowed the board to direct the governor on matters of monetary policy.

The board can only make a new regulation with the approval of the government and through a notification in an official gazette, which would, in turn, need to be approved by both houses of Parliament within 30 days, Malegam pointed out.
First Published on Nov 9, 2018 08:13 pm
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