Mumbai: Central banks are unique in two ways, first, they are public policy institutions that operate without any profit motive and second, since they possess the exclusive authority to create money, they cannot go bankrupt in the usual sense, Reserve Bank of India (RBI) Deputy Governor Shirish Chandra Murmu said on Friday.
A central bank’s functions without a motive of profit, its balance sheets reflect the policy measures it undertakes to address the prevailing economic conditions of the country during a given period, and even if its balance sheet shows losses or negative equity, it can still carry out its functions.
Addressing an international conference on central bank accounting practices organised by the RBI jointly with the SEACEN centre here, the Deputy Governor said that central bank mandates vary widely across jurisdictions, reflecting their historical and institutional contexts.
Despite the differences in mandates, functions or roles across countries, at the heart of every central bank is monetary policy and financial stability.
“Central banks aim to maintain adequate capital and reserves/ risk buffers to be able to perform these critical functions effectively. The Reserve Bank of India has one of the broadest mandates, functioning as a full-service central bank that undertakes a wide range of responsibilities typically associated with a central bank,” Murmu said.
On accounting standards, he said that as widely understood, there is no single globally accepted accounting standard designed specifically for central banks and hence, their accounting and disclosure practices vary considerably in format, depth, and emphasis.
While some central banks have adopted the principles set out in International Financial Reporting Standards (IFRS), either in full or with modifications to suit their specific needs, others continue to apply their own national accounting standards or use hybrid frameworks tailored specifically for the central bank, he added.
The Deputy Governor hailed the RBI’s accounting practices, saying the entire ownership of the RBI remains vested with the Government of India.
The way RBI prepares its financial statements and sets its accounting policies is guided mainly by the RBI Act of 1934 and the RBI General Regulations of 1949.
Over time, within this legal framework, these policies have evolved to keep up with changing needs and practices.
“I am pleased to say that the Reserve Bank of India has a strong and resilient balance sheet, with an adequate level of risk provisioning,” he noted.
Over the years, the RBI has consistently worked to align its accounting practices with global best practices, while staying true to core principles of prudence and conservatism, he stated.
(IANS)
