Oracle IAS, the best coaching institute for RBI grade B/NABARD/SEBI in Dehradun (Uttarakhand), brings to you views on important issues.
What is the capital reserve with the RBI now?
- The RBI maintains various types of reserves in the form of capital to cover various risks including market risk, operational risk, credit risk and contingency risk. All these risks may arise as the RBI has to interact with banks and government by providing financial support to them. For the financial year ending June 2018, the RBI has a reserve of Rs 9.59 lakh crore. This reserve is comprised of mainly currency and gold revaluation account (Rs 6.91 lakh crore) and the contingency fund (Rs 2.32 lakh crore).
- The foreign exchange reserve and the minimum reserves are not part of this capital reserves.
Why the government need capital reserves of the RBI?
- As for the government, it has to find funds to solve the Rs 9 lakh crore bad debt problem. No source is visible given the huge amount of money required. Here comes the value of RBI’s capital reserves. It is reported that the government has demanded Rs 3.6 lakh crores from the RBI.
What is the RBI stance on government demand for using capital reserves?
- The RBI has adopted a strong opposition to the government demand. Across the world, several central bank functionaries also historically adopted such a position. RBI’s objections are based on three arguments:
(1) RBI need funds to manage macroeconomic risks including financial stability risks.
(2) Use of RBI funds to finance fiscal deficit is undesirable.
(3) Capital reserve is closely related with the autonomy and independence of the central bank.
What is the government response to tide over RBI opposition?
- The government will bring a ‘capital framework’ for the central bank. This framework is expected to find the amount of ‘excess reserves’ with the RBI.
- The RBI, in consultation with the Government of India, UNDER CHAIRMANSHIP OF DR BIMAL JALAN has constituted an Expert Committee to review the extant Economic Capital Framework of the RBI.
- Contact us for:-RBI GradeB/NABARD/SEBI coaching in Dehradun (Uttarakhand), Current Affairs classes in Dehradun (Uttarakhand),For best guidance and study material call 7088873675, 9997453844
Chief Mentor at Oracle IAS
Hemant Bhatt is a B. Tech from Pantnagar University and has studied Social Sciences at SciencesPo, Paris. He teaches at Oracle IAS, Dehradun. He has given 5 UPSC mains back to back along with 2 interviews.
He is a bibliophile,accomplished writer and a fitness enthusiast.
He is a bibliophile,accomplished writer and a fitness enthusiast.
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