Economic Capital Framework - ECF
- adopted by RBI in 2019
- aims to balance the RBI's autonomy with the govt's development goals
- method to determine the risk provisions and profit distribution under Section 47 of the RBI Act, 1934, which requires the central bank to pay profits to the govt after provisioning for debts, assets depreciation and staff contributions
- recommended by Bimal Jalan committee to Review the extant economic capital framework of the RBI
- ! approved a record transfer of 2,10,874 crore to the union govt for 2023-24
- ! also increased the Contingent Risk Buffer (CRB) to 6.50%
Bimal Jalan committee recommendations
- total economic capital - 20.8 to 25.4 % of the RBI's balance sheet
- risk capital framework to be assessed with the adequacy of RBI reserves
- CRB - 5.5 to 6.5% of RBI's balance sheet
- $ CRB - country's financial savings for financial stability crisis
- $ maintained by RBI as it role of being Lender of last resort
- review the ECF every 5 years or sooner
- sync RBI's fiscal year (april-march) with the govt's from 2020-21
- remove interim payout structure
- & all recommendations were accepted by RBI
Reasons for higher dividend transfer
- increased RBI revenue from variable repo rate
- higher revaluation gains from forex reserves
- increased interest rates on domestic and foreign securities
- higher gross sales of foreign exchange sales
- rupee depreciation against US dollar
Implications of surplus transfer
- boosts capex
- offset lower tax buoyancy
- meet budget targets
- manage fiscal deficits
Against higher transfer
- ensure sufficient reserve for financial crisis
- preserve RBI's independency
- prioritise long term economic stability over short term gains
- maintain CRB
