Global Banks Under Fire: RBI's Shirish Murmu Demands Stronger Capital & Crystal Clear Accounting!

Author

Abhay Singh | Whalesbook News Team

Detailed Coverage:

Shirish Chandra Murmu, Deputy Governor of the Reserve Bank of India, recently addressed the critical need for standardization in central bank accounting practices worldwide. Speaking at the International Conference on Central Bank Accounting Practices, organized by the RBI and the SEACEN Centre, Murmu pointed out significant differences in how central banks globally report their balance sheets due to varied mandates and a lack of common standards.

The Reserve Bank of India itself operates under strict regulations, including the RBI Act, 1934, and RBI General Regulations, 1949. Murmu explained that the RBI employs conservative valuation norms, such as daily mark-to-market for its entire foreign exchange reserves and weekly valuation for domestic securities. Importantly, unrealised gains are not treated as income, while unrealised losses on securities are covered by the Contingency Fund at the year-end. The central bank maintains separate revaluation accounts for different asset classes, ensuring no interchangeability. The RBI's financial robustness is underscored by its economic capital, comprising 7.5% realised equity and 17.4% revaluation balances, totaling approximately 25% of its balance sheet.

Murmu also elaborated on the RBI's rule-based surplus distribution framework, governed by the Economic Capital Framework (ECF) adopted in 2018-19. This framework, reviewed internally, allows for surplus transfer to the government only after covering monetary, financial, credit, and operational risks.

Impact This news has an indirect impact on the Indian stock market and Indian businesses. It pertains to the financial stability, regulatory transparency, and operational soundness of the central bank, which forms the bedrock of the economic environment. Stronger capital buffers and transparent practices can enhance overall financial system confidence, potentially leading to more stable market conditions. It also highlights how emerging financial technologies like CBDCs might reshape central bank operations, a topic of significant interest for financial sector stakeholders. Rating: 5/10