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DAILY NEWS ANALYSIS

  • 22 May, 2021

  • 13 Min Read

RBI gives Rs. 99,122 crore surplus to Government

RBI gives Rs. 99,122 crore surplus to Government

  • The Reserve Bank of India’s board approved a significantly higher-than-expected surplus transfer to the government on Friday but it may not be enough to cushion the damage from a crippling second wave of the novel coronavirus.
  • The surplus distribution policy of the RBI is determined in accordance with Section 47 of the RBI Act, 1934.
  • The RBI announced a surplus transfer of ?99,122 crore for the 9-month period from July 2020 to March 2021, the central bank said in a statement. The bank will move to an April to March accounting year from 2021/22, from a July to June year.
  • The higher-than-expected dividend or surplus transfer to the government comes as the government is expecting a sharp sequential fall in tax collections due to the severe second wave of COVID-19 which has forced lockdowns in several States.
  • “This surplus likely reflects the central bank’s higher income from their open market operations as well as receipts from FX sales, with its transfer to the government’s coffers providing some cushion to the pandemic-driven shortfall in revenues,” said Radhika Rao, an economist with DBS.
  • The government had budgeted to receive a surplus of about ?50,000 crore from the RBI to be accounted for in the budget estimates for 2021/22, while in the previous full accounting year, the RBI had transferred ?57,128 crore as surplus.
  • Barring 2018/19, this is the highest ever transfer by the RBI in an accounting period. In FY19, ?1.76 lakh crore was transferred to the government which included a one-time transfer of extra reserves.
  • The government is likely to find it challenging to meet its privatisation and disinvestment target of $24 billion while goods and services tax (GST) revenues are also likely to fall, a government official said.
  • The RBI also decided to maintain a Contingency Risk Buffer at 5.50% in line with recommendations of the Bimal Jalan Committee report.

Bimal Jalan Committee to review the RBI’s Economic capital framework.

  1. It allows higher capital expenditure on infrastructure and social programs. These are surplus funds and part of excess provisions identified as per revised Economic Capital Framework (ECF) adopted by RBI's board.
  2. It recommended to align the RBI’s accounting year with the financial year. The accounting years of RBI is April to March and RBI’s accounting year is July to June.
  3. RBI’s provisioning for monetary, financial and external stability risks is India’s savings for a ‘rainy day’, (a monetary or financial stability crisis) which is maintained with RBI for its role as a Lender of the Last Resort and Monetary Authority. This risk provisioning is known as Contingent Risk Buffer (CRB).
  4. Panel recommended a clear distinction between 2 components of Economic Capital
    1. Realized Equity: Built up from retained earnings. To be used to meet all risks/ losses.
    2. Revaluation Balances: They represented unrealized valuation gains and hence not distributable. They can be reckoned only as risk buffers against market risks.
  5. RBI holds its money under 4 heads
    1. Contingency Fund
    2. Currency and Gold re-evaluation account
    3. Asset Development Fund and
    4. Investment re-evaluation account
  6. RBI earns its money via several channels
    1. Income which it generates on the interest of Govt bonds which are held for conducting OMOs.
    2. Fees from Govt's market borrowing endeavours.
    3. It retains some earnings after transfer of dividends to Indian Govt.
    4. It earns from interest which it generates after the investment in foreign currency assets.

Source: TH


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