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Excess RBI capital must be used to recapitalise PSBs: BofA-ML

Wednesday, June 12, 2019

The Bimal Jalan panel may recommend transferring up to Rs 3 lakh crore of excess Reserve Bank capital to the government and the money should be used for recapitalising struggling state-run lenders, says a report.

The report of the six-member committee on economic capital framework for RBI headed by former governor Jalan is likely to submit its report by late this month, according to media reports.

Depending on the methodology, the panel will identify Rs 1 to 3 lakh crore or 0.5-1.5 percent of GDP as the excess capital, the report by economists at Bank of America Merrill Lynch said in a note yesterday.

They opined the high non-performing loans in the system do not require additional capital to be kept aside by the Reserve Bank.

"We actually welcome the use of excess RBI capital to recapitalise public sector banks to support economic recovery," they said, adding even the RBI Act allows for transfer of the capital provided the central bank maintains USD 0.7 million of reserves.

The RBI can "monetise networth as the creator of money" and will not have to resort to selling of G-secs or forex reserves either, it said.

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