Analysis: RBI has US$43bil in excess capital

MUMBAI: A panel named by India’s central bank to study its capital structure is likely to identify excess reserves of up to 3 trillion rupees (US$43bil), or 1.5% of gross domestic product, according to Bank of America Merrill Lynch (BofAML).

The view from BofAML lends itself to a debate over Reserve Bank of India’s (RBI) reserves, with one school of thought believing that the monetary authority holds surplus capital that can be handed over to the government and the other saying the RBI has insufficient reserves.

BofAML’s note comes as the panel led by former central bank governor Bimal Jalan prepares to submit its report in the coming weeks. While finance ministry officials have supported transfer of surplus reserves to help the government meet budget goals, a central bank-backed think tank found that the RBI’s capital buffer that’s below the global average capital to asset ratio.

“Our stress tests throw up a range of one trillion rupees plus only from contingency reserves,” Indranil Sen Gupta, chief India economist at BofAML, said in the note. According to him, India’s central bank maintains higher contingency reserves as a percentage of its total book compared to its peers in Brazil, Russia and South Africa and a lower cap will release more funds. — Bloomberg