In a significant move aimed at ensuring more predictable dividend payouts to the central government, the Reserve Bank of India (RBI) has revised its reserve buffer guidelines, expanding the range of the Contingent Risk Buffer (CRB) — a key component of the central bank’s capital framework.

The RBI Board, at its meeting earlier this month, reviewed the Jalan Committee's recommendations and approved a new CRB range of 4.5% to 7.5% of the RBI’s balance sheet liabilities, compared to the earlier narrower range of 5.5% to 6.5%.

This revision is a part of the RBI’s continuing effort to strike a balance between financial prudence and fiscal support to the government, especially at a time when steady dividend flows are crucial for funding public expenditure.

What Is the Contingent Risk Buffer (CRB)?

The CRB is a reserve that the RBI maintains to meet unexpected future risks, especially those arising from its monetary policy operations, currency management, and market interventions.

It acts as a financial safety net, allowing the central bank to manage crises or shocks without jeopardising its balance sheet.

By widening the permissible range, the RBI now has greater flexibility to adjust the size of its reserves based on prevailing economic and financial conditions.

Why the Revision Matters

The decision follows several years of debate over the quantum of reserves the RBI should hold, especially as the central government has sought higher dividend transfers to support fiscal consolidation and public spending.

The Jalan Committee — officially known as the Bimal Jalan Expert Committee on Economic Capital Framework — was constituted in 2018 to review the RBI’s capital requirements and surplus distribution policy.

The committee, which submitted its report in 2019, had recommended that the RBI retain a CRB within the 5.5%-6.5% range of its balance sheet and transfer any excess capital to the government.

However, in light of recent macroeconomic stability and the need to institutionalise consistent surplus transfer, the RBI Board has now widened the range to 4.5%-7.5%, with the lower threshold offering greater room for dividend payouts in stable periods.

Implications for the Government

The new buffer rule comes just weeks after the RBI announced a record surplus transfer of ₹2.1 lakh crore to the Centre for FY24 — nearly double what was expected by the Union Budget.

With the CRB lower limit now at 4.5%, the RBI can retain fewer reserves and transfer a larger share of profits to the government during times of low financial volatility.

This directly aids the Centre’s fiscal position, helping fund welfare schemes, infrastructure projects, and debt servicing obligations.

However, during periods of heightened risk — such as global financial instability or domestic crises — the RBI will still retain the ability to build up the buffer to as high as 7.5%, ensuring it has adequate capital to respond to systemic threats.

Expert Views

Economists and policy watchers have largely welcomed the move, calling it a pragmatic balance between risk management and fiscal assistance.

Sonal Varma, Chief Economist at Nomura India, said:

“A more flexible buffer range allows the RBI to follow a counter-cyclical strategy — build buffers during booms and release surplus during stability. It helps both the RBI and the government manage their respective mandates better.”

Aurodeep Nandi, Vice President at Nomura, added:

“This tweak reflects institutional maturity. It keeps the RBI financially resilient while also supporting the Centre’s growth objectives via higher dividends.”

At the same time, experts caution that surplus transfers must remain non-inflationary, and should not lead to over-reliance by the government on RBI funds.

Maintaining Independence and Stability

By adopting a broader CRB band, the RBI is signalling that it remains committed to its core principles of central bank independence, risk preparedness, and transparency in financial management.

The revised framework also brings India more in line with global central banking norms, where capital buffers are dynamic, adjusted periodically based on the macroeconomic environment and risk exposure.

Conclusion

The RBI’s decision to adjust its reserve norms is both a strategic and fiscal move. It enables the central bank to support the government’s fiscal needs in stable times without compromising its ability to respond to shocks.

As India navigates a complex global financial environment, such policy recalibrations signal a maturing economic framework that prioritises financial stability, fiscal prudence, and institutional harmony.

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