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Friday, September 17, 2021

RBI okays surplus transfer of Rs 57,128 crore to govt

Move in accordance with economic capital framework suggested by Bimal Jalan committee.

By: ENS Economic Bureau | Mumbai |
August 15, 2020 12:34:17 am
Shaktikanta Das interview, Indian Economic crisis, Indian Economic slowdown, Shaktikanta Das on Indian economy, Shaktikanta Das on budget, Shaktikanta Das on banks, indian express newsRBI Governor Shaktikanta Das (Express photo by Tashi Tobgyal)

The Central Board of the Reserve Bank of India (RBI) on Friday approved the transfer of Rs 57,128 crore as surplus — or dividend — to the central government for accounting year 2019-20, sharply lower by 67.5 per cent from Rs 1.76 lakh last year.

The government, which is finding ways to put the Covid-hit economy back on the rails, could use the amount to contain the fiscal deficit and recapitalise public sector banks. While the RBI’s transfer this year is as per the economic capital framework (ECF) adopted by the RBI board last year, the government was not expecting a repeat of the bonanza as last year’s transfer included Rs 1,23,414 crore of dividends due from the previous financial year (2018-19), and Rs 52,637 crore of excess provisions as per the revised ECF.

As per Section 47 of the RBI Act, profits of the RBI are to be transferred to the government, after making various contingency provisions, public policy mandate of the RBI, including financial stability considerations.

The central bank’s income typically comes largely from the returns it earns on its foreign currency assets, deposits with other central banks, the interest it earns on its holdings of local rupee-denominated government bonds or securities and lending to banks for very short tenures (such as overnight) and management commission on handling the borrowings of state governments and the central government.

However, as per the ECF adopted by the RBI board last year, the contingency risk buffer (CRB), or realised equity, has to be maintained at 5.5-6.5 per cent of the balance sheet. The RBI board decided to maintain the buffer at 5.5 per cent this year.

The surplus transfer was a contentious issue between the RBI and the government till last year. The Jalan panel was set up during the tenure of Urjit Patel as RBI Governor, and the RBI was resisting government’s demand for more dividend. The RBI’s central board last year accepted the recommendations of the high-level panel, under the leadership of former RBI Governor Bimal Jalan, which was formed to recommend ways to utilise RBI’s excess cash reserve and part transfer to the government.

Sonam Chandwani, managing partner at KS Legal & Associates, said, “According to the RBI Act of 1934, section ‘Allocation of Surplus Funds’ mandates for profits made by the RBI from its investments and minting currency to be sent to the government from its surplus capital. The revised framework would augment the central bank’s economic capital levels to lie within an acceptable range of 24 per cent to 20 per cent of its balance sheet.”

On Friday, the RBI board also discussed various areas of operations of the bank during the last year and approved the Annual Report and accounts of the Reserve Bank for the year 2019-20.

The board reviewed the current economic situation and the monetary, regulatory and other measures taken by RBI to mitigate the impact of the pandemic. The board discussed the proposal of setting up an Innovation Hub.

Change in accounting year

The RBI is aligning its July-June accounting year with the government’s April-March fiscal year in order to ensure more effective management of the country’s finances. The current accounting year will be a nine-month period which started from July 2020 and ends on March 31, 2021. ENS

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