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Active trading saved RBI from seeking additional capital

The Reserve Bank of India’s active trading in the market helped it avoid seeking capital from the government to meet prescribed levels, analysts said.

If not for its sell/buy swaps in the currency market and conversion of revaluation gains into realised profits, the central bank’s capital levels might have fallen below those prescribed by the Bimal Jalan committee, they said.

The RBI reduced its balance sheet by over Rs 1.6 trillion during March 2022, largely through use of foreign currency sell/buy swaps. This helped it reduce the need for economic capital by over Rs 330 billion.

Without this timely reduction of the balance sheet, and without the active conversion of Rs 780 billion of revaluation gains into realised profits through its market operations through the year, the RBI would have required a net capital injection from the government to comply with the Bimal Jalan committee recommendations,” said Ananth Narayan, associate professor at S P Jain Institute of Management and Research.

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