Tweeps ask: 'Why is the Indian government dipping into RBI reserves?'

Tweep @mangeram0154 analysed: “Instead of aumentation of revenues by economic development, control of wasteful expenditure and corruption leakages, to control deficit; government has dipped in to RBI reserves...”

Twitter user @theDDixit highlighted Bharatiya Janata Party’s promise ahead of the 2014 elections: “2014 - There’s enough money to deposit Rs15 lakh (Rs1.5 million) in each person’s bank account.
2016 - Deposit all your cash in banks.
2019 - #RBI, deposit 1.76 lakh crore in govt’s account.”

Like many others, tweep @AIBOCFRANCO tried to make sense of the situation. He elaborated: “How did the RBI get the surplus? It belongs to the banks. Banks are depositing in CRR (Cash Reserve Ratio). Transferring this to the government may lead to another crisis as RBI is the lender on last resort. Let’s wait and see...”

What is the Cash Reserve Ratio?

It refers to the cash that banks have to maintain with the Reserve Bank of India (RBI). RBI decides the ratio, according to which banks have to deposit a certain percentage of their funds with RBI.

RBI being robbed?

@KhamoshVIVEK tweeted: “From lender of the last resort to ‘transferring surplus money to bridge deficit/fund requirements’ RBI role has changed indeed.

What is a lender of last resort?

It is an institution, usually a country’s central bank, that offers loans to banks or other eligible institutions that are experiencing financial difficulty or are considered highly risky or near collapse.

@t_d_h_nair posted: "The RBI is the lender of the last resort for the banking sector. Weakening its finances might prove costly during the financial/economic crisis. Since the government has a gaping budget deficit and its sovereign credit rating poor, the risk is heightened."

As a Banker to Banks, the Reserve Bank of India acts as the ‘lender of the last resort’. It can come to the rescue of a bank that is solvent but faces temporary liquidity problems by supplying it with much needed liquidity when no one else is willing to extend credit to that bank. The Reserve Bank extends this facility to protect the interest of the depositors of the bank and to prevent possible failure of the bank, which in turn may also affect other banks and institutions and can have an adverse impact on financial stability and thus on the economy.

Tweep @NembuKol also asked: “RBI being robbed? Wasn’t that the last reserve?”

Is it a good thing?

Some tweeps, especially supporters of the current government say yes.

Twitter user @junawa_anil explained: “The RBI has shown it’s trust on the central government.... It will help the government to maintain the [country’s] GDP and provide money to various sectors for welfare.”

@ramessshk, who supports the decision asked: “RBI is giving surplus money to the government of India for Indian people. What is wrong with that?”

BJP making up for budget deficit: Congress

The country’s main opposition party, Congress took to Twitter to say that “looting” the central bank would not help in reviving the economy.

Slamming the excess reserve transfer, Congress attacked the Narendra Modi-led NDA government on Twitter and said: “Rs. 1.76 lakh crore given to the government by RBI is almost the exact same amount missing from they Budget 2019 announcement. Where was that money spent? Why was it missing from the Budget?”
“Looting the RBI like this only devastates our economy further and reduces the credit rating of the bank,” it added.

Congress leader Rahul Gandhi followed up and tweeted that both Narendra Modi and Union Finance Minister Nirmala Sitharaman are clueless on how to solve their “self-created economic disaster”.

@FarooqMAbbas1 agreed and tweeted: #RBIReserves RBI bank-rolling the govt proves two things: A, the gloomy economy scenario being refuted by government is indeed very gloomy, and B, the RBI, after Raghavan and Urjit Patel has mortgaged its autonomy to the government."

Last year, Prime Minister Narendra Modi’s handpicked Governor of the Reserve Bank of India (RBI) Urjit Patel has resigned. He was the second RBI Governor to quit after its former chief Raghuram Rajan was not offered an extension by the Modi government.

Twitter user @soumodiptoroyy added: “RBI has lost its autonomy by succumbing to government and accepting their ill thought demands. The transfer is a telling story about economic plunder and mishandling by Modi government. #RBILooted.”

Tweep @vinay_khamkar replied: “While #demonetization is the biggest economic blunder of our times, this too looks like a disaster. @RBI’‘s contingency fund now at a low 5.5-6.5% of balance sheet, leaves very little room for emergency intervention.”

RBI money belongs to the people, say tweeps

While some pointed out that as per RBI Act 1935 the RBI is an autonomous body and the government. However, as per section 7 of the RBI act the government may instruct RBI to do something in public interest.

@Prescottasia tweeted: “@RBI money also belongs to people of republic of India as governed by democratically elected people of the republic. Stagnant reserves like a buried pot of gold. How on earth is this stealing? Big ticket, transformative infrastructure announcements soon...”

Meanwhile, @laleet2729 tried to make a satirical comment: “#JalanCommittee: Now RBI will be renamed as Reserveless Bank of India.”

Core capital of RBI not sufficient: Study

The Reserve Bank of India (RBI) employees union has urged the central bank to seek consensus on the Bimal Jalan panel report “in view of wider and long-term implications of the recommendations, irreversibility thereof”.

According to an IANS report: “The union also pointed to a study of balance sheets of 47 central banks belonging to both advanced and emerging economies by the Centre for Advanced Financial Research and Learning, a RBI think-tank, with the Columbia University.

“The study has suggested, said the union, compared with other central banks (taking into account the value at risk) the core capital of the RBI is not sufficient.”