Over a month after its board decided to form an expert panel to decide on the appropriate size of the RBI's reserves, the central bank today constituted a six-member committee headed by former Governor Bimal Jalan with former secretary Rakesh Mohan as the vice chairman.
The panel will include Economic Affairs Secretary Subhash Chandra Garg and RBI Deputy Governor N S Vishwanathan, the RBI said in a statement.
Bharat Doshi and Sudhir Mankad who are members of the central board of the RBI, will be other two members of the expert committee on Economic Capital Framework.
The centre and the RBI under the previous Governor Urjit Patel had been at loggerheads over the 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 is well above the global norm which is around 14 per cent.
The board of RBI in its meeting on November 19 had decided to constitute the panel but the committee could not be announced as the two sides reportedly differed on the role of Mr Mohan.
Urjit Patel, who resigned as RBI Governor recently, was said to have contested the appointment of Mr Mohan.
Mr Patel resigned as RBI Governor on December 10 and a day later former economic affairs secretary Shaktikanta Das was named his replacement.
The Expert Committee would review status, need and justification of various provisions, reserves and buffers presently provided for by the RBI. It will also review global best practices followed by the central banks in making assessment and provisions for risks which central bank balance sheets are subject to.
The panel will propose a suitable profits distribution policy taking into account all the likely situations of the RBI, including the situations of holding more provisions than required.
The RBI has also entrusted the panel to suggest an adequate level of risk provisioning that the RBI needs to maintain.
Earlier this month, Finance Minister Arun Jaitley said the government does not need money from the RBI to fund fiscal deficit.
"My government has the best fiscal record and even this year we will maintain the fiscal deficit. And therefore to maintain fiscal deficit I don't need that kind of money," he had said.
In the past, the issue of the ideal size of RBI's reserves was examined by three committees -- V Subrahmanyam (1997), Usha Thorat (2004) and Y H Malegam (2013).
While the Subrahmanyam committee recommended that contingency reserve should be built up to 12 per cent, the Thorat committee had said the reserve adequacy should be maintained at 18 per cent of the total assets.
The RBI board did not accept the recommendation of the Thorat committee and decided to continue with the recommendation of the Subrahmanyam panel.
The Malegam committee recommended that adequate amount of profits should continue to be transferred each year to contingency reserves.