Govt wants Rs 3.6 lakh crore from RBI, a third of its reserves, central bank says no
New Delhi : At the heart of the RBI-government standoff is a proposal by the Finance Ministry seeking to transfer a surplus of Rs 3.6 lakh crore, more than a third of the total Rs 9.59 lakh crore reserves of the central bank, to the government. The ministry has suggested that this surplus can be managed jointly by the RBI and the government.
The Finance Ministry claims that the existing economic capital framework — which governs the RBI’s capital requirements and terms for the transfer of its reserves to the government — is based on a very “conservative” assessment of risk by the central bank.
Sources have confirmed to The Indian Express that the RBI views this attempt by the Government to dip into its reserves can adversely impact macro-economic stability. And so the RBI has not accepted the proposed changes, sources said.
For its part, the Finance Ministry argues that the current framework was “unilaterally” adopted by the RBI in July 2017 because both the government nominees on the Board were not present during the meeting. The government did not accede to this framework and has since then been constantly seeking discussions with the RBI.
The government is of the view that RBI has over-estimated its capital reserves requirements resulting in excess capital of Rs 3.6 lakh crore.
That’s why, sources said, the government has proposed that the use of these funds be decided in consultation with the RBI. These funds can be used, for example, to recapitalise public sector banks, help them expand their loan book and come out of the Prompt Corrective Action framework.
The RBI, however, feels strongly that using central bank reserves has pitfalls. In its opinion, this does not tantamount to any fresh income, and was essentially in the nature of issuing new securities to fund government expenditure. Not only does it hurt the government’s commitment to fiscal prudence, it also affects the confidence of the financial markets.
The finance ministry has also raised objections to the staggered surplus distribution policy (SSDP) of the central bank, under which the RBI transfers its surplus to the government. The ministry’s view is that RBI has been “conservative” and at times “arbitrary,” especially when it came to the transfer of the interim surplus.
Sources said the ministry proposed that from 2017-18, the RBI should transfer the entire surplus to the government after taking into account its capital requirement. This is another area where the government and the RBI differ.
In 2017-18, the RBI transferred a surplus of Rs 50,000 crore to the government (comprising an interim transfer of Rs 10,000 crore), up from Rs 30,659 crore in 2016-17, but lower than in the previous three years.
The government believes that, when compared with global central banks, the RBI holds much higher total capital as a percentage of its total assets (at about 28 per cent).
Countries including the US, the UK, Argentina, France, Singapore maintain much lower capital as a percentage of total assets, while the same for countries including Malaysia, Norway and Russia are much higher than India.
The RBI maintains various types of reserves to cover various risks including market risk, operational risk, credit risk and contingency risk. For the year ending June 2018, RBI had total reserves of Rs 9.59 lakh crore, comprising mainly currency and gold revaluation account (Rs 6.91 lakh crore) and contingency fund (Rs 2.32 lakh crore).
While Contingency Fund represents the provisions made for unforeseen contingencies, the Currency and Gold Revaluation Account represent unrealised marked to market gains/losses.
In his speech on October 26, which brought into open the tussle between the finance ministry and the central bank, RBI Deputy Governor Viral Acharya said how a transfer of excess reserves from a central bank to government can be “catastrophic,” as had been proven in the case of Argentina. The transfer of $6.6 billion of its central bank’s reserves to the national treasury, sparked off “the worst constitutional crises in Argentina and led to “a grave reassessment of its sovereign risk”, Acharya asserted.
To buttress his point, Acharya quoted former Deputy Governor Rakesh Mohan to warn against the pitfalls of the government using central bank’s reserves. “The longer-term fiscal consequences would be the same if the government issued new securities today to fund the expenditure. (Raiding) the RBI’s capital creates no new government revenue on a net basis over time, and only provides an illusion of free money in the short term.”
Last Wednesday, the finance ministry said that the autonomy for the RBI “is an essential” and both the government and the RBI have to be “guided by public interest and the requirements of the Indian economy”. The government tried to defuse the tension in its relations with the RBI, which soured over the ministry starting consultations over a range of issues with the central bank under the Section 7 of the RBI Act.
Queries sent to the finance ministry and the RBI seeking comments for the story did not elicit any response.
Many economists and expert committees have in the past argued that the RBI is holding much higher capital that required to cover all its risks and contingencies. Former Chief Economic Adviser Arvind Subramanian said in Economic Survey2016-17 that the RBI is “is already exceptionally highly capitalized” and nearly Rs 4 lakh crore of its capital transfer to the government can be used for recapitalizing the banks and/or recapitalizing a Public Sector Asset Rehabilitation Agency. This proposal was opposed by the then RBI Governor Raghuram Rajan.
The Malegam Committee in 2013 estimated that the RBI was holding Rs 1.49 lakh crore of reserves and buffers in excess of its requirements.
courtesy : indianexpress.com
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8 children between ages of 1 and 14 dead after mass shooting in Louisiana, police say
Shreveport(US) (AP): A gunman in Louisiana killed eight children in shootings at two different homes early Sunday in the nation's deadliest mass shooting in more than two years, police in Shreveport said.
The victims ranged in age from one to about 14 years old, said Shreveport police spokesperson Chris Bordelon. A total of 10 were shot and some of the children were related to the suspect, Bordelon said.
The gunman later died after a chase with officers who fired at the suspect, Bordelon said. The suspect stole a car while leaving the scene of the shootings and was followed by police, according to Bordelon.
Police did not release the name of the suspect but did say he was an adult male. The shootings were the result of a “domestic disturbance,” Bordelon said.
Officials said they were still gathering details at the crime scenes south of downtown Shreveport — the two homes and a third location.
“This is an extensive scene unlike anything most of us have ever seen,” he said.
It was the deadliest mass shooting in the US since eight people were killed in a Chicago suburb in January 2024, according to a database maintained by The Associated Press and USA Today in partnership with Northeastern University.
At a news conference outside the residence where one of the shootings occurred, officials appeared stunned, requesting patience and prayers from the community as they sorted through multiple crime scenes.
“I just don't know what to say, my heart is just taken aback,” Shreveport Police Chief Wayne Smith said. “I cannot begin to imagine how such an event could occur.”
“This is a tragic situation — maybe the worst tragic situation we've ever had,” said Tom Arceneaux, mayor of the city in northwestern Louisiana with about 180,000 residents. “It's a terrible morning.”
Louisiana State Police say their detectives have been asked by Shreveport police to investigate. In a statement, state police say no officers were harmed in the shooting that involved an officer after a police pursuit into Bossier City on Sunday morning.
State police are asking anyone with pictures, video or information to share it with state police detectives.
Louisiana Gov Jeff Landry said in a statement that he and his wife were heartbroken. “We're deeply grateful to the law enforcement officers and first responders working tirelessly on the scene,” he added.
