Indian government official says no proposal to ask RBI to transfer reserves

Centre trying to ‘capture’ RBI to tide over its fiscal crisis says P Chidambaram

Centre has not sought Rs 3.6 lakh crore from RBI, clarifies senior finance ministry official

The RBI cancelled the registration in the exercise of powers conferred on it under Section 45-IA (6) of the Reserve Bank of India Act, 1934. "There is no proposal to ask the RBI to transfer 3.6 or 1 lakh crore, as speculated".

The issue of RBI's capital needs may come up at the next board meeting on November 19.

The government's demand is expected to further fuel tensions with the RBI, which has been pushing back any moves that curtail the central bank's independence. Former finance minister said November 19 will be day of day of reckoning when the RBI board is scheduled to meet, adding that the government has packed the RBI board with its handpicked nominees and is making every attempt to ram through its proposal at the meeting.

Earlier this month, Reserve Bank Deputy Governor N S Vishwanathan dismissed calls for lowering capital adequacy norms for the lenders and matching them with global levels. The RBI instead has 27%. The BJP government is trying to see the RBI as a limited company.

Meanwhile, the Centre seems to be busy setting the tone for the RBI board meeting.

The row which has erupted between the RBI and the government is not linked to cash reserves, but to fix an appropriate economic capital framework of the central bank, said Economic Affairs Secretary Subhash Chandra Garg. Chidambaram tweeted. Economic capital framework refers to the funds set aside by the RBI required to deal with different kinds of financial risks such as an economic meltdown, he said.

The ongoing tussle between the Centre and RBI has handed ammunition to the Opposition.

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Former finance minister P. Chidambaram on Friday warned the NDA government against laying its hands on RBI reserves, saying it will have "catastrophic" economic consequences for the country.

SC Garg, Department of Economic Affairs (DEA) Secretary, said, "Lot of misinformed speculation is going around in media". From 2014-15 onwards, the government has succeeded in bringing it down substantially. We will end the FY 2018-19 with a fiscal deficit of 3.3%.

He went on to add: "Assuming that the RBI returns Rs 4 lakh crore of capital to the government, what are the uses to which this capital can be put?"

The current total capital of the RBI is about Rs 10.53 lakh crore. This includes balances in Contingency Fund, Asset Development Fund (ADF), Currency and Gold Revaluation Account (CGRA), Foreign Exchange Forward Contracts Valuation Account (FCVA) and Investment Revaluation Account Rupee Securities (IRA-RS), besides some minor accounts head.

The central government had on Friday said it was discussing an "appropriate" size of capital reserves that the central bank must maintain, but denied seeking a massive capital transfer from the RBI.

The Reserve Bank of India has ₹9.59 trillion in reserves, of which the government is reportedly demanding ₹3.6 trillion to address India's liquidity crisis.

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