Contingency Risk Buffer (CRB)

Prelims: Indian Economy | Current events of national and international importance

Why in News

Recently, the Reserve Bank of India’s (RBI’s) central board has sought the government’s approval to expand the range of the contingent risk buffer (CRB).

• CRB – It is a specific provision fund kept by the central bank primarily to be used during any unexpected and unforeseen contingencies.
  • Unforeseen contingencies – It could include depreciation of securities values, risks from monetary rate policy changes, systemic risks to the system, etc.
• The apex bank, for a fiscal year, has to keep the buffer fund of a certain % of its balance sheet.
• Determined by – RBI’s Central Board.
• Current CRB – It is maintained at 5.5-6.5% of the RBI’s balance sheet, in accordance with the recommendations of the Bimal Jalan committee.

The Economic Capital Framework adopted in 2019, based on the Bimal Jalan Committee's recommendations, stipulates that a specific portion of the Reserve Bank of India's (RBI) surplus earnings is allocated to a Contingency Risk Buffer (CRB), while the remaining surplus is transferred to the Government of India.

• Significance – The surplus, which the RBI transfers to the government, depends on how much risk buffer it wants to maintain.
• A higher risk buffer would mean a lower amount of transferable surplus and vice versa.

RBI’s Central Board

• The Reserve Bank’s affairs are governed by a central board of directors.

• Appointment - The board is appointed by the Government of India in keeping with the Reserve Bank of India Act of 1934.
• Tenure – They are appointed/nominated for a period of 4 years
• Composition
  • Official Directors - Full-time: Governor and not more than 4 Deputy Governors
  • Non-Official Directors - Nominated by Government: 10 Directors from various fields and 2 government officials
  • Others: 4 Directors - one each from four local boards
• Functions – General superintendence and direction of the Bank's affairs.

Reference

1. Business Standard| Decision on Contingent Risk Buffer
2. RBI| RBI’s Central Board

Related News – RBI’s Surplus Transfer to Government