The Reserve Bank of India on Wednesday constituted an expert committee to review the extant economic capital framework of the central bank.

"As decided by the Central Board of Reserve Bank of India (RBI) in its meeting held on November 19, 2018, the RBI, in consultation with the Government of India, has today constituted an Expert Committee to review the extant Economic Capital Framework of the RBI," it said in a statement.

The committee will be headed by Bimal Jalan, former RBI governor, while Rakesh Mohan, former deputy governor and former DEA (Department of Economic Affairs) secretary, is the vice chairman of the committee.

Other members include RBI central board directors Bharat Doshi and Sudhir Mankad; Subhash Chandra Garg, secretary, DEA, and NS Vishwanathan, RBI deputy governor.

This comes after government officials pressured the RBI for weeks to accede to a range of demands, from handing over surplus reserves to the government to easing of lending curbs.

The expert committee will determine the appropriate levels of reserve the central bank should hold.

The committee is supposed to submit its report within a period of 90 days from the date of its first meeting.

The terms of reference of the committee are given below:

Keeping in consideration (i) statutory mandate under section 47 of the RBI Act that the profits of the RBI shall be transferred to the Government, after making provisions ‘which are usually provided by the bankers’, and (ii) public policy mandate of the RBI, including financial stability considerations, the Expert Committee would: review status, need and justification of various provisions, reserves and buffers presently provided for by the RBI; and review global best practices followed by the central banks in making assessment and provisions for risks which central bank balance sheets are subject to.

To suggest an adequate level of risk provisioning that the RBI needs to maintain;

To determine whether the RBI is holding provisions, reserves and buffers in surplus/deficit of the required level of such provisions, reserves and buffers;

To 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 and the RBI holding less provisions than required;

Any other related matter including treatment of surplus reserves, created out of realised gains, if determined to be held.

The government has been sparring with the RBI on deciding a fixed formula for transferring dividend to the government as it believes the central bank currently uses an "arbitrary" method.

The government wants to set a clear formula for transfer of the funds as the calculation of fiscal deficit and expenditures can be upset if the amount of transfer is lower-than-expected.

With inputs from Reuters.

First Published:Dec 26, 2018 7:51 PM IST