BofAML’s note comes as the panel led by former governor RBI
Bimal Jalan prepares to submit its report in the coming weeks. While finance ministry officials have supported transfer of surplus reserves to help the government meet budget goals, a central bank-backed thinktank found that the RBI’s capital buffer that’s below the global average capital to asset ratio.
“Our stress tests throw up a range of one trillion rupees plus only from contingency reserves," Indranil Sen Gupta, chief India economist at BofAML, said in the note.
According to him, the RBI
maintains higher contingency reserves as a percentage of its total book compared to its peers in Brazil, Russia and South Africa and a lower cap will release more funds.
As such, if the cap is halved to 3.25 per cent from 6.25 per cent, currently, that will release Rs 1.3 trillion, Sen Gupta added.
Along with revaluation gains, which range from Rs 3 billion to Rs 1.8 trillion, the RBI
would be in a position to transfer the excess reserves to the government, which can be used to recapitalise the country’s struggling state-run banks, he said.