• Former Reserve Bank of India (RBI) Governor Raghuram Rajan has cautioned that transfer of excess reserve to the government may bring down rating of the central bank.
  • Rating downgrade of the RBI from ‘AAA’ would make borrowing costlier for the central bank and will have implication for the entire economy.
  • We are barely investment grade.
  • Sometime, we need to undertake international transactions which require really high credit rating. For example swap we did in 2013.
  • So, for that we need unimpeachable balance sheet.
  • Why don’t we keep the RBI as an unimpeachable balance sheet with AAA credit rating that requires certain amount of equity.
  • Highlighting that profit of the central bank largely comes due to devaluation of Indian currency, keeping a portion for the contingency reserves, RBI usually pays entire profit.
  • RBI can pay profit and not whatever it holds for contingency reserves for movement up and down. For example, rupee that depreciated could also strengthen So we should accommodate for that.
  • There seems to be a tussle going on between the RBI and the government over various issues, including transfer of excess capital of the apex bank.