The chief of India’s central bank has indicated to a parliamentary panel that the current level of currency reserves it maintains are “necessary”.
Facing a volley of questions from committee members, Urjit Patel is said to have indicated that the Reserve Bank of India (RBI) wants to maintain close to 99 per cent of current reserves to maintain a robust balance sheet and keep the AAA rating — so that if it wants to borrow, it can borrow quickly.
This is the first time Patel has spoken about the issue since a meeting of the RBI’s central boardwas held on November 19.
The government and the RBI are to finalise the composition and terms of reference of the committee meant to provide a solution to the dispute.
HANGING ON TO AAA RATING IS IMPORTANT: PATEL
The Reserve Bank currently has Rs 9.79 lakh crore in reserves — a sum equivalent to 28 per cent of its assets.
The government’s contention is that this is way beyond the global norm of 14 per cent, and that the RBI can easily transfer Rs 3 lakh crore to it.
However, the RBI governor has indicated to the parliamentary panel that the central bank may not be ready to dish out much from the current reserves, and that hanging on the AAA rating is important for the RBI — as ratings upgrades are difficult, and achieved after a lot of effort.
However, at the meeting, the RBI came under a lot of fire as the BJP and MPs from several parties questioned Patel over issues of autonomy.
Opposition MPs wanted the RBI chief to explain his response to the government’s invoking of Section 7 of the RBI Act — a rare move that came ahead of the last board meeting.
The BJP lawmakers, led by Nishikant Dubey, wanted Patel to explain the demand for autonomy flagged by Viral Acharya, the central bank’s deputy governor, in a lecture almost a week before the board meeting.
Patel was asked: “Why [is] the RBI battling for autonomy now after it didn’t resist the UPA government [setting] up the Financial Stability and Development Council [FSDC] in 2013, which brought all financial regulators — including SEBI, RBI, IRDA and PFRD — under [then] Finance Minister Pranab Mukherjee as the chairman?”
“Members wanted to know why the RBI has been selective in its approach,” said one senior committee member. “It had little problem in giving higher surplus till two years to the government. It had no problem working under the finance minister in a body.”
On questions on the way forward with respect to reserves, the RBI governor has sought 10 days’ time to file a reply. He also conveyed to the committee that he would file a reply on queries regarding the level of implementation of BASEL norms in India and other countries.
PATEL DEFENDS DeMo
While the RBI governor held his ground on the reserves issue, he launched a fierce defence of demonetisation.
Facing questions from opposition MPs on its adverse impact, Patel said — according to sources — that the “negative impact of the note ban was transient”, but led to long-term benefits.
He informed the committee that after demonetisation, the cash-GDP ratio grew from 10 per cent to 12 per cent. He said digital transactions in India before the ban stood at 97 million, and rose to 1.7 billion after.
He also said that today, inflation is at 4 per cent — lower than in any developing country in the world.
News credit : indiatoday