Chennai: The Reserve Bank of India holds excess reserves of up to Rs 3 trillion ($43 billion), even as a panel named by the Central bank to study its capital structure is readying to submit its report.
According to Bank of America Merrill Lynch (BofAML), the committee is likely to identify excess reserves that equals to 1.5 per cent of country’s gross domestic product (GDP).
BofAML’s note comes as the panel led by former central bank Governor Bimal Jalan prepares to submit its report in the coming weeks, reports state.
While Finance Ministry officials have supported transfer of surplus reserves to help the government meet budget goals, a Central bank-backed thinktank 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,” chief India economist at BofAML, Indranil Sen Gupta, 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.
As such, if the cap is halved to 3.25 per cent from 6.25 per cent, currently, that will release 1.3 trillion rupees, Sen Gupta added.
Along with revaluation gains which range from Rs 3 billion to Rs 1.8 trillion, India’s Central bank would be in a position to transfer the excess reserves to the government which can be used to recapitalize the country’s struggling State-run banks, he said.
The RBI books revaluation gains on the foreign currency assets and gold holdings. Those holdings are currently just above $400 billion, the report said.