What's The "Tearing Hurry" To Fix RBI Capital: P Chidambaram Asks Centre

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In a series of tweets, the senior Congress leader slammed the government for allegedly seeking funds from the RBI despite claiming that its (Centre's) fiscal math was correct.

Economic Affairs Secretary Subhash Chandra Garg took to Twitter on Friday to clarify that the government was not in any dire need of funds and that there was no proposal to ask the RBI to transfer Rs 3.6 lakh crore.

The RBI Board recently entered the news during the public spat between the central bank and the Finance Ministry.

According to the RBI Act, the director of the RBI Board can not be a salaried government official (except for the ones specifically nominated by the government), be adjudicated as insolvent or have suspended payments to creditors, an officer or employee of any bank (again, this does not include the government nominee), or, interestingly, "is found lunatic or becomes of unsound mind". The money belongs to the people of India and it should be chanellised towards welfare schemes to be undertaken by the government instead of keeping it idle.

Garg added that the only proposal concerning the reserves that the government was discussing was to fix the appropriate economic capital framework of the RBI.

The issue of RBI's capital needs may come up at the next board meeting on November 19.

Earlier this year, the RBI had chose to pay Rs 50,000 crore as dividend to government in line with the Union Budget provisions, helping the Centre to stick to its fiscal roadmap.

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As many as 99.3% of the old Rs 500 and 1,000 notes that were banned overnight in November 2016, were returned, the RBI had said in its latest annual report. "It weakens the balance sheet of the central bank and provides a wrong incentive to the government, as it weakens the incentive to control the rapid expansion of spending and to promote some consolidation of fiscal accounts in 2010". The capital framework governs the RBI's capital requirements and terms for the transfer of its surplus to the government. In contrast, a simple value at risk is assessed based on the experience of a pre-determined number of days.

It added: "A central bank's role in fostering monetary and financial stability also exposes it to a wider range of risks, including losses arising from market interventions, lender of last resort role, market maker of last resort, and quasi-fiscal operations".

The RBI is now resisting any attempt to slash its capital-to-assets ratio.

While the finance ministry had pointed out that close to Rs 400 crores worth of Rs 500 and Rs 1000 denominations were counterfeit, in the RBI meeting held at 5:30pm that day, the directors noted, "While any incidence of counterfeiting is a concern, Rs 400 crores as a percentage of the total quantum of currency in circulation in the country is not very significant".

The Economic Affairs Secretary stated that the only proposal under discussion was to "fix appropriate economic capital framework of RBI". From 2014-15 onwards, Government has succeeded in bringing it down substantially. "We will end the FY 2018-19 with FD of 3.3 per cent. Government has actually foregone 70,000 crore of budgeted market borrowing this year".

On June 30, RBI's surplus reserve stood at Rs 9.63 lakh crore (approx).

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