Finance Minister Arun Jaitley puts to rest reports of Government seeking reserves from RBI

The issue of  'overcapitalisation' of RBI has been a point of discussion among economists.

After the board meeting of 19 November between RBI and Government to settle differences, Finance Minister Arun Jaitley has put to rest reports of government seeking RBI reserves, which it deemed are in excess.

In an interview with Times Now, Arun Jaitley said that India does not need money from the RBI in the next six months. Recently, the government was accused by the opposition of assaulting RBI’s autonomy, after RBI’s deputy governor Viral Acharya openly attacked the government over the issue. This was followed by many points of contention coming to fore, which created a stint of friction between two.

The reports and allegations made by Viral Acharya were rubbished by Secretary of Economic Affairs, Subhash Garg, adding that demand is only about constituting of Economic Capital Framework (ECF) to ascertain excess and needed reserves.

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This demand of ECG was conceded by RBI in the board meeting on 19 November along with various other demands.

“We respect the autonomy (of the RBI) but, at the same time, if some sectors are starved of liquidity or credit, we will flag those issues. We do so with the RBI.”  Arun Jaitley added to his comments on RBI.

The issue of  ‘overcapitalisation’ of RBI has been a point of discussion among economists. In last year’s economic survey, Chief Economic Advisor Arvind Subramaniam cast doubt on the need of RBI to be that much capitalised. He said, RBI is one the most capitalised banks in the world, and it will be no harm to the institution to transfer its excess reserves to the government, to curb fiscal deficit.

The board meeting of 19 November, was seen as a ceasefire between Government and RBI. The government managed to successfully negotiate and made RBI agree to points, earlier on which RBI was reluctant. The issues included, restructuring of stressed assets for MSMEs easing of Prompt Corrective Action and easing of Basel norms.

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