The decision to form a panel to review the ECF was taken in the RBI board meeting held on November 19
The Centre has named former Reserve Bank of India (RBI) governor Bimal Jalan to head an expert committee to review the central bank's economic capital framework (ECF), while RBI has suggested the name of former deputy governor Rakesh Mohan for the post, Business Standard reported.
The decision to form a panel to review the ECF was taken in the RBI board meeting held on November 19.
This panel is likely to have a government representative and a deputy governor of the central bank, sources said.
Sources said this panel will not discuss the revaluation reserves held by RBI in its 'currency and gold revaluation reserves', which accounted for over 70 percent of RBI's reserves of Rs 9.6 lakh crore at the end of June 2018.
"The unrealised gains in the revaluation accounts were never on the table. The panel will mainly discuss how much provisioning is to be made by the RBI towards various possible risks. The provisioning done by the RBI towards various risks has 25 variables and assumptions," one source was quoted as saying.
The tiff between the RBI and the government on the issue of use of reserves had caused a split of opinion even between former bureaucrats and academicians.
Among the names that have reportedly been proposed, Rakesh Mohan, a former deputy governor of the RBI has batted strongly for maintaining central bank autonomy on issues of capital policy. Former RBI governor Bimal Jalan has maintained the central bank must be accountable to the government.
In a recent interview, Jalan did not comment on whether RBI contingency reserves could be used by the government but said it would depend on the urgency and the possible impact of the contingency fund on the financial sector.
RBI's deputy governor from 2002-2004 and 2005-2009, Rakesh Mohan has worked with Jalan briefly in his first tenure. He recently wrote that the central bank's reserves must remain strong for the economy's functioning.
He wrote that "raiding RBI's capital would create no new government revenue on a net basis over time and it provides an illusion of free money in the short-term".
He added that any transfer will "erode whatever confidence that exists in the government's intention to practice fiscal prudence" and it will cost RBI its credibility in the financial markets. Mohan said there must be discussion over whether RBI's capital is excessive.The central bank uses its reserves for monetary policy operations, currency fluctuation, possible fall in bond values and credit risks, among other operations.