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RBI's balance sheet is a topsy-turvy world of inverted values, says ex-deputy governor

The Reserve Bank of India's balance sheet is a topsy-turvy world of inverted values as some components of the apex bank's accounts defy all canons of prudent management, says former deputy governor of RBI S S Tarapore.

Speaking at a seminar on 'Balance Sheet Management' organised by the RBI at the Bankers Training College in Bombay today, Tarapore said that standard accounting practices and criteria of sound corporate management cannot be applied to the RBI balance sheet. ''While the growth of a corporate enterprise and rise in profits reflect strength, quite often these parameters in the RBI balance sheet are reflections of weaknesses in the economy,'' Tarapore averred, adding that though RBI holds funds of various organisations, it does not remunerate them. ''While this is sound central banking practice, normally, it would be deemed to be a case of undue enrichment,'' he said.

Tarapore, who chaired the committee that prepared the capital account convertibility report, termed monetisation of fiscal deficit, paying interest on cash balances of banks with the RBI, granting of exchange rate guarantees and borrowing by the central bank as ''mortal sins'' of central banking.

He said that the profit transfer by the RBI to the Union government should be a single figure arising out of the foreign currency non-resident account and not a precedent for earmarking profit transfers for specific purposes.

The former deputy governor said though there has been an increase in the cash reserve ratio, the longer term trend will be towards a sharp reduction in CRR and this will drastically reduce interest burden on the RBI.

UNI