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Informist, Friday, Feb. 7, 2025

--RBI Rao: Jalan panel framework being reviewed as part of 5-year review 

NEW DELHI – The Reserve Bank of India is conducting an internal review of the economic capital framework, which was recommended by the Bimal Jalan Committee and adopted by the central bank in 2019, RBI Governor Sanjay Malhotra said on Friday. 

When asked at the post-policy press conference if the RBI should increase the contingency risk buffer over the current 6.50%, Malhotra said that the "overall framework is being reviewed and we will take a decision as per the recommendations of the committee that is reviewing it."

The RBI, in consultation with the government, had constituted the Jalan Committee in 2018 to review the economic capital framework. The economic capital framework provides the methodology which determines the appropriate level of risk provisions that the central bank has to make and the surplus that it transfers to the government. The Jalan committee had recommended that the risk provisioning under the contingent risk buffer be maintained within a range of 6.50% to 5.50% of the RBI's balance sheet.

The central board of the RBI had maintained the contingent risk buffer at 5.50% of the central bank's balance sheet size to support growth and overall economic activity during FY19 and FY22, owing to the prevailing macroeconomic conditions and the onslaught of COVID-19 pandemic. As economic growth revived in FY23, the buffer was increased to 6.00%. The buffer was further increased to 6.50% for FY24.

"Jalan committee recommendations were till June 2024. Internally, we are reviewing the entire economic capital framework, the whole thing, and seeing whether any changes are warranted and internally we will take it appropriately," RBI Deputy Governor Rajeshwar Rao said at the press conference. "If we need to engage with the government or the board, we will do it at a later point in time but the internal review is on."  End

Reported by Shubham Rana

Edited by Akul Nishant Akhoury

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