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RBI’s Contingent Risk Buffer and Surplus Transfer

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What is the Contingent Risk Buffer (CRB)?

  • The CRB is a reserve maintained by the RBI to cover unexpected risks and losses.
  • It is a component of the Economic Capital Framework (ECF), based on recommendations by the Bimal Jalan Committee.
  • The current CRB range is 5.5% to 6.5% of the RBI’s balance sheet.

Recent Developments

  • The RBI’s Central Board recently met to review the ECF.
  • It has sought the Government’s approval to expand the CRB range, citing increasing vulnerabilities and macroeconomic fluctuations.
  • An expanded CRB range could provide the RBI more flexibility in managing economic shocks.

Implication for Surplus Transfer

  • The transferable surplus from the RBI to the government depends on how much CRB is maintained.
    • Higher CRB → Lower surplus transfer
    • Lower CRB → Higher surplus transfer

Why It Matters

  • The CRB acts as a financial safety net for the central bank.
  • Modifying the CRB range impacts:
    • Government finances (due to surplus dependency)
    • RBI’s risk-taking capacity
    • Investor and market confidence in the RBI’s risk management

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