RBI’s Contingent Risk Buffer and Surplus Transfer
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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