What is it?
A high-level panel led by former RBI governor Bimal Jalan was set up to decide the appropriate capital reserves that the central bank should maintain in 2018 December. The six-member Jalan panel is to review the Economic Capital Framework for the RBI.
Why was it set up?
The panel has been entrusted with the task of reviewing the best practices followed by central banks worldwide in making assessment and provisions for risks, which a central bank balance sheets are subject to.
What are the different views on the capital requirements of the RBI?
The government and the RBI had differed over the need for Rs 9.6 lakh crore surplus capital with the central bank.
The finance ministry was of the view that the buffer of 28 per cent of gross assets maintained by the RBI (like foreign currency assets, SDRs, gold, government securities etc) is well above the global norm of around 14 per cent. Following this, the RBI board decided to constitute a panel to examine Economic Capital Framework.
In the past, the issue of the ideal size of the Reserve Bank of India reserves was examined by three committees -- V Subrahmanyam in 1997, Usha Thorat in 2004 and YH Malegam as late as in 2013.
RBI holds some capital in contingency reserves and also revaluation reserves.
Jalan panel report is expected in July 2019.
What is the defense for such high capital surplus?
The buffers will keep the credit rating of the RBI high. That sets the creditworthiness level soof India high. Rates will be low for borrowing. It helps further as the Union Budget 2019-20 mooted sovereign bonds to be floated externally.