Daily Current Affairs – 2020Topic: For Prelims and Mains
Slave Trade Abolition :
Resources: The Hindu /PIB
Why in News? The night of 22 to 23 August 1791, in Santo Domingo (today Haiti and the Dominican Republic) saw the beginning of the uprising.
Topic: For Prelims and Mains
Economic Capital Framework ( ECF) :
Why in News? The Reserve Bank of India (RBI) at its board meeting recently decided to transfer 1.76 lakh crore to the Centre which is likely to address the precarious fiscal situation of the government to a great extent.
The 1.76 lakh crore includes the central bank’s 2018-19 surplus of 1.23 lakh crore and 52,637 crore of excess provisions identified as per the revised Economic Capital Framework (ECF) adopted at the Board meeting.
The RBI had formed a committee chaired by former Governor Bimal Jalan to review its economic capital framework and suggest the quantum of excess provision to be transferred to the government.
Main recommendations of Bimal jalan Committee:
The panel recommended a clear distinction between the two components of economic capital – realized equity and revaluation balances.
It was recommended that realized equity could be used for meeting all risks/ losses as they were primarily built up from retained earnings, while revaluation balances could be reckoned only as risk buffers against market risks as they represented unrealized valuation gains and hence were not distributable.
What is economic capital framework?
Economic capital framework refers to the risk capital required by the central bank while taking into account different risks. The economic capital framework reflects the capital that an institution requires or needs to hold as a counter against unforeseen risks or events or losses in the future.
Why it needs a fix?
Existing economic capital framework which governs the RBI’s capital requirements and terms for the transfer of its surplus to the government is based on a conservative assessment of risk by the central bank and that a review of the framework would result in excess capital being freed, which the RBI can then share with the government.
The government believes that RBI is sitting on much higher reserves than it actually needs to tide over financial emergencies that India may face. Some central banks around the world (like US and UK) keep 13% to 14% of their assets as a reserve compared to RBI’s 27% and some (like Russia) more than that.